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Foreign Equity Flows and Market Return Linkages: Evidence of Malaysian Stock Market

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  • Ros Zam Zam Sapian
  • Noor Azryani Auzairy

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.

Suggested Citation

  • Ros Zam Zam Sapian & Noor Azryani Auzairy, 2015. "Foreign Equity Flows and Market Return Linkages: Evidence of Malaysian Stock Market," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 1-14, October.
    • Handle: RePEc:sae:globus:v:16:y:2015:i:5_suppl:p:1s-14s
    DOI: 10.1177/0972150915601233
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    Cited by:

    1. Ros Zam Zam Sapian & Jing Quan Lee, 2018. "Return, Volatility and Equity Fund Flows Linkages: Evidence from an Emerging Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(7), pages 172-186, July.

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