Stock returns and mutual fund flows in the korean financial markets: a system approach

Jaebeom Kim, Jung Min Kim

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


This paper investigates dynamic and causal relations between stock returns and mutual fund flows in Korea using a system method that utilizes information from the stock, bond, and money markets. For this purpose, we employ the Dynamic Seemingly Unrelated Regression, the Seemingly Unrelated Regression Error Correction Model, and two causality tests in a system method to account for cross-equation correlations among markets that have a close relationship with one another. Furthermore, we use the information in the variance-covariance matrix of residual to improve the efficiency of the statistical estimates. The empirical evidence from the system method indicates that fund flows do not respond to eliminate deviations from long-run equilibrium, and stock prices cause net fund flows in the Korean market, implying that investors move their money to the securities that yield higher returns to rebalance their investment portfolios in the short-run. Thus, our findings do not support the popular notion of mutual fund flows as the driving force behind rallies in the Korean financial markets.

Original languageEnglish
Pages (from-to)3588-3599
Number of pages12
JournalApplied Economics
Issue number33
StatePublished - 14 Jul 2020


  • DSUR
  • Stock returns
  • causality
  • cointegration
  • mutual fund flows


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