The Lead-lag Relationships of Equity Fund Flows: Evidence of an Emerging Market

ABSTRACT This study examines the lead-lag relationships among four arrays of equity fund flows into Malaysian equity market. The equity fund flows are of (1) local institutional and retail investors and (2) foreign institutional and retail investors. Using a daily aggregate data, the findings of this study reveal that foreign institutional equity fund flows have an impact on both local institutional and retail equities’ fund flows. However, local institutional equity fund flows do not have relationships with either foreign institutional or retail equity fund flows. This research also shows that there is a bi-directional causality between local retail and foreign institutional equities’ fund flows. However, there is a uni-directional causality running from local retail to foreign retail equity fund flows. The finding also discloses that there is no lead-lag relationship between foreign institutional and retail equities’ fund flows. Even though both local institutional and retail equities’ fund flows influence each other, the impact of local institutional on local retail equity fund flows is stronger. Fund flows own innovations explain more on the variability in both foreign institutional and retail equities’ fund flows, as well as local retail equity fund flows. However, innovations in other types of equity fund flows on aggregate basis explain more on the variability in local institutional equity fund flows as opposed to its own innovations. Finally, among the four categories of equity traders, foreign institutions and local retailers seem to drive Malaysian equity market. Keywords: Lead-lag relationships; equity fund flows; institutional investors; retail investors; emerging market; granger causality; variance decomposition ABSTRAK Kajian ini meneliti hubungan pimpin-lengah di kalangan empat kategori aliran dana ekuiti ke dalam pasaran ekuiti Malaysia. Aliran dana ekuiti adalah bagi kategori pelabur berikut iaitu (1) pelabur institusi dan runcit tempatan dan (2) pelabur institusi dan runcit asing. Penemuan kajian berdasarkan data agregat harian menunjukkan bahawa aliran dana ekuiti institusi asing mempunyai kesan terhadap aliran dana ekuiti institusi dan runcit tempatan. Walau bagaimanapun, aliran dana ekuiti institusi tempatan tidak mempunyai hubungan dengan aliran dana ekuiti institusi atau runcit asing. Kajian ini juga menunjukkan bahawa wujud hubungan dua hala antara aliran dana ekuiti runcit tempatan dan institusi asing. Walau bagaimanapun, wujud hubungan satu hala antara aliran dana ekuiti runcit tempatan dan asing. Penemuan kajian juga menunjukkan bahawa tiada hubungan pimpin-lengah antara aliran dana ekuiti institusi dan runcit asing. Walaupun aliran dana ekuiti institusi dan runcit tempatan mempengaruhi antara satu sama lain, tetapi kesan aliran dana ekuiti institusi ke atas aliran dana ekuiti runcit tempatan adalah lebih kukuh. Pada dasarnya, inovasi kendiri menjelaskan lebih banyak mengenai kebolehubahan(variabiliti) dalam aliran dana ekuiti institusi dan runcit asing, serta aliran dana ekuiti runcit tempatan. Walau bagaimanapun, inovasi dalam aliran dana ekuiti asing serta aliran dana ekuiti runcit domestik secara agregat mempunyai impak yang signifikan terhadap kebolehubahan dalam aliran dana ekuiti institusi tempatan berbanding dengan inovasi kendiri.. Akhirnya, di kalangan empat kategori pedagang ekuiti tersebut, pelabur institusi asing dan pelabur runcit tempatan merupakan penggerak utama kepada pasaran ekuiti Malaysia. Kata kunci: Hubungan pimpin-lengah; aliran dana ekuiti; pelabur institusi; pelabur runcit; pasaran baru muncul; kesan granger; penguraian varians