Equity Fund Flows and the Stock Market Returns over Business Cycle in Thailand
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Abstract
This study contributes to additional insights from the literature by exploring the impact of fund flow in the different stages of the business cycle. The stock market is driven by the demand and supply of investors. In The Stock Exchange of Thailand (SET), there are four major types of investors consists of foreign investors, domestic institutes, proprietary traders, and retail investors. This study explores the competing hypothesis on fund flows to the SET. The study uses the Autoregressive Distributed Lag (ARDL) model to test short-term relationships, Cointegration to identify the long-term relationships, and pairwise Granger causality analysis to confirm the causality. The results partly support the feedback-trader hypothesis only for the short- and long-term relationship between market return and fund flow from foreign investors in the recession stage. The results do not support the price-pressure hypothesis for the fund flows from all types of investors to the stock market at any stage of the business cycle.
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