European Investment Fund Flows and Financial Stability

Journal of Asset Management, Vol. 10, pp. 293-304, December 2009

Posted: 20 May 2011

See all articles by Elias Bengtsson

Elias Bengtsson

Halmstad University; University of Gothenburg - School of Business, Economics and Law

Date Written: May 13, 2011

Abstract

Using a unique data set on quarterly European net fund flows combined with stock market data drawn from publicly available sources, this article seeks to determine whether stock market performance influences investment fund flows and whether fund flows affect stock market performance. Given that the absolute bulk of research on this issue is based on US data, the data enable an investigation into the relationship between fund flows and stock markets in a completely new institutional context. Our findings cannot confirm that fund flows impact subsequent returns or that return affects future flows. Therefore, our findings indicate that investment fund flows do not seem to contribute financial instability by inflating or deflating stock market prices. However, the data demonstrate both contemporaneous and lagged correlation between fund flows and stock market returns. We also find some (statistically insignificant) indications of price pressure effects on global stock market returns, and noise trading and investor sentiment effects on European stock market returns.

Keywords: fund flows, financial stability, asset bubbles, investor sentiment, noise trading

Suggested Citation

Bengtsson, Elias, European Investment Fund Flows and Financial Stability (May 13, 2011). Journal of Asset Management, Vol. 10, pp. 293-304, December 2009, Available at SSRN: https://ssrn.com/abstract=1840291

Elias Bengtsson (Contact Author)

Halmstad University ( email )

301 18 Halmstad
Sweden

University of Gothenburg - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

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