The price linkages between Malaysian unit trust funds and the stock market: Short run and long run interrelationships

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6 Citations (Scopus)

Abstract

Purpose – The primary objective of the paper is to examine the short and long run price linkages between Malaysian unit trust funds and the stock market index as proxied by the Kuala Lumpur composite index (KLCI) over the period 1996-2000. Design/methodology/approach – Cointegration analyses are used to identify the long run relationship between unit trust funds and the stock market index while Granger causality tests are used to measure the short run price linkages. Findings – Cointegration results show that the long run pricing performance of the unit trust funds differs significantly from that of the KLCI. Interestingly, the findings also reveal that two index funds are found not to be cointegrated with the stock market index. In the short run, one-way Granger causality test shows that changes in the KLCI Granger causes changes in the unit trust funds. This suggests that fund managers are responding to the past changes in the stock market index over the short run. Research limitations/implications – The findings of non-cointegration between passively managed funds and the KLCI are restricted to only two index funds in the sample among other actively managed funds. Since there were not enough index funds available over the study period, future research should include more index funds in the analysis. Practical implications – In the short run, investors may gather information on the changes in their portfolio composition by observing the movement in the KLCI. Originality/value – The paper represents the first evidence on the pricing relationships between unit trust funds and the local stock market index and the findings are important to investors in terms of their investment strategies.

Original languageEnglish
Pages (from-to)89-101
Number of pages13
JournalManagerial Finance
Volume33
Issue number2
DOIs
Publication statusPublished - 23 Jan 2007

Fingerprint

Stock market index
Composite index
Short-run
Interrelationship
Linkage
Unit trusts
Stock market
Trust funds
Index funds
Pricing
Cointegration
Investors
Granger causality test
Managed funds
Portfolio composition
Design methodology
Investment strategy
Fund managers
Long-run relationship

Keywords

  • Malaysia
  • Price positioning
  • Process analysis
  • Stock markets
  • Unit trusts

ASJC Scopus subject areas

  • Finance
  • Strategy and Management

Cite this

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title = "The price linkages between Malaysian unit trust funds and the stock market: Short run and long run interrelationships",
abstract = "Purpose – The primary objective of the paper is to examine the short and long run price linkages between Malaysian unit trust funds and the stock market index as proxied by the Kuala Lumpur composite index (KLCI) over the period 1996-2000. Design/methodology/approach – Cointegration analyses are used to identify the long run relationship between unit trust funds and the stock market index while Granger causality tests are used to measure the short run price linkages. Findings – Cointegration results show that the long run pricing performance of the unit trust funds differs significantly from that of the KLCI. Interestingly, the findings also reveal that two index funds are found not to be cointegrated with the stock market index. In the short run, one-way Granger causality test shows that changes in the KLCI Granger causes changes in the unit trust funds. This suggests that fund managers are responding to the past changes in the stock market index over the short run. Research limitations/implications – The findings of non-cointegration between passively managed funds and the KLCI are restricted to only two index funds in the sample among other actively managed funds. Since there were not enough index funds available over the study period, future research should include more index funds in the analysis. Practical implications – In the short run, investors may gather information on the changes in their portfolio composition by observing the movement in the KLCI. Originality/value – The paper represents the first evidence on the pricing relationships between unit trust funds and the local stock market index and the findings are important to investors in terms of their investment strategies.",
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AB - Purpose – The primary objective of the paper is to examine the short and long run price linkages between Malaysian unit trust funds and the stock market index as proxied by the Kuala Lumpur composite index (KLCI) over the period 1996-2000. Design/methodology/approach – Cointegration analyses are used to identify the long run relationship between unit trust funds and the stock market index while Granger causality tests are used to measure the short run price linkages. Findings – Cointegration results show that the long run pricing performance of the unit trust funds differs significantly from that of the KLCI. Interestingly, the findings also reveal that two index funds are found not to be cointegrated with the stock market index. In the short run, one-way Granger causality test shows that changes in the KLCI Granger causes changes in the unit trust funds. This suggests that fund managers are responding to the past changes in the stock market index over the short run. Research limitations/implications – The findings of non-cointegration between passively managed funds and the KLCI are restricted to only two index funds in the sample among other actively managed funds. Since there were not enough index funds available over the study period, future research should include more index funds in the analysis. Practical implications – In the short run, investors may gather information on the changes in their portfolio composition by observing the movement in the KLCI. Originality/value – The paper represents the first evidence on the pricing relationships between unit trust funds and the local stock market index and the findings are important to investors in terms of their investment strategies.

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