Foreign Equity Flows and Market Return Linkages

Evidence of Malaysian Stock Market

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study examines the linkages between foreign equity flows and stock market returns of Bursa Malaysia. Specifically this article intends to investigate whether past stock returns influence foreign equity flows or vice versa in a short-term time horizon. To explore the linkages between these two variables, this study employs bivariate vector autoregressive (VAR) model. In addition, to determine the causal relation between stock returns and foreign equity flows, this study utilizes VAR Granger causality test. The findings of this study provide evidence that foreign institutional investors are momentum traders, while foreign retail investors are contrarian traders with regard to the return of Malaysian equity market. Another main finding is that domestic equity returns have an effect on fund flows of foreign retail investors and vice versa; meanwhile, there is a positive causal relation between domestic equity returns and foreign institutional fund flows.

Original languageEnglish
JournalGlobal Business Review
Volume16
DOIs
Publication statusPublished - 24 Oct 2015

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Linkage
Stock market
Equity markets
Equity flows
Market returns
Stock returns
Investors
Equity returns
Retail
Traders
Stock market returns
Momentum
Flow of funds
Time horizon
Vector autoregressive
Granger causality test
Institutional investors
Malaysia
Fund flows
Vector autoregressive model

Keywords

  • bidirectional relationship
  • Bursa Malaysia
  • emerging stock market
  • feedback trading strategies
  • Foreign equity flows
  • foreign institutional and retail investors
  • momentum and contrarian traders
  • momentum strategy
  • stock market return
  • VAR model

ASJC Scopus subject areas

  • Business and International Management

Cite this

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title = "Foreign Equity Flows and Market Return Linkages: Evidence of Malaysian Stock Market",
abstract = "This study examines the linkages between foreign equity flows and stock market returns of Bursa Malaysia. Specifically this article intends to investigate whether past stock returns influence foreign equity flows or vice versa in a short-term time horizon. To explore the linkages between these two variables, this study employs bivariate vector autoregressive (VAR) model. In addition, to determine the causal relation between stock returns and foreign equity flows, this study utilizes VAR Granger causality test. The findings of this study provide evidence that foreign institutional investors are momentum traders, while foreign retail investors are contrarian traders with regard to the return of Malaysian equity market. Another main finding is that domestic equity returns have an effect on fund flows of foreign retail investors and vice versa; meanwhile, there is a positive causal relation between domestic equity returns and foreign institutional fund flows.",
keywords = "bidirectional relationship, Bursa Malaysia, emerging stock market, feedback trading strategies, Foreign equity flows, foreign institutional and retail investors, momentum and contrarian traders, momentum strategy, stock market return, VAR model",
author = "Sapian, {Ros Zam Zam} and Auzairy, {Noor Azryani}",
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N2 - This study examines the linkages between foreign equity flows and stock market returns of Bursa Malaysia. Specifically this article intends to investigate whether past stock returns influence foreign equity flows or vice versa in a short-term time horizon. To explore the linkages between these two variables, this study employs bivariate vector autoregressive (VAR) model. In addition, to determine the causal relation between stock returns and foreign equity flows, this study utilizes VAR Granger causality test. The findings of this study provide evidence that foreign institutional investors are momentum traders, while foreign retail investors are contrarian traders with regard to the return of Malaysian equity market. Another main finding is that domestic equity returns have an effect on fund flows of foreign retail investors and vice versa; meanwhile, there is a positive causal relation between domestic equity returns and foreign institutional fund flows.

AB - This study examines the linkages between foreign equity flows and stock market returns of Bursa Malaysia. Specifically this article intends to investigate whether past stock returns influence foreign equity flows or vice versa in a short-term time horizon. To explore the linkages between these two variables, this study employs bivariate vector autoregressive (VAR) model. In addition, to determine the causal relation between stock returns and foreign equity flows, this study utilizes VAR Granger causality test. The findings of this study provide evidence that foreign institutional investors are momentum traders, while foreign retail investors are contrarian traders with regard to the return of Malaysian equity market. Another main finding is that domestic equity returns have an effect on fund flows of foreign retail investors and vice versa; meanwhile, there is a positive causal relation between domestic equity returns and foreign institutional fund flows.

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KW - stock market return

KW - VAR model

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