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Mutual funds as an alternative to direct stock investment: A cointegration approach

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  • Juan Carlos Matallin
  • Luisa Nieto

Abstract

The great growth of mutual funds (FIM) in Spain over recent years raises the question whether an investor adopting a passive management strategy can consider those funds as a serious alternative to direct investment in the stock exchange. Thus, this paper presents a new approach to research on the Spanish investment fund market. It studies the Spanish stock funds versus the alternative of direct investing in the stock exchange using the stock index Ibex 35 as the benchmark. One can say that a fund replicates the benchmark index when both variables share common trends in the long run. Therefore, cointegration methodology is used to determine the longrun relationship between the funds value and Ibex 35. It is found that 11 out of 63 funds are cointegrated with the stock index, hence those funds could be used for investors seeking a passive management strategy.

Suggested Citation

  • Juan Carlos Matallin & Luisa Nieto, 2002. "Mutual funds as an alternative to direct stock investment: A cointegration approach," Applied Financial Economics, Taylor & Francis Journals, vol. 12(10), pages 743-750.
    • Handle: RePEc:taf:apfiec:v:12:y:2002:i:10:p:743-750
    DOI: 10.1080/09603100110038693
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    1. Sasipa Pojanavatee, 2014. "Cointegration and causality analysis of dynamic linkage between stock market and equity mutual funds in Australia," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-17, December.
    2. Chu, Patrick Kuok Kun, 2010. "The price linkages between the equity fund price levels and the stock markets: Evidences from cointegration approach and causality analysis of Hong Kong Mandatory Provident Fund (MPF)," International Review of Financial Analysis, Elsevier, vol. 19(4), pages 281-288, September.
    3. Choong Tze Chua & Winston Koh, 2007. "Measuring investment skills of fund managers," Applied Financial Economics, Taylor & Francis Journals, vol. 17(16), pages 1359-1368.
    4. Chu, Patrick Kuok-Kun, 2011. "Relationship between macroeconomic variables and net asset values (NAV) of equity funds: Cointegration evidence and vector error correction model of the Hong Kong Mandatory Provident Funds (MPFs)," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 792-810.
    5. Alexakis, Christos & Dasilas, Apostolos & Grose, Chris, 2013. "Asymmetric dynamic relations between stock prices and mutual fund units in Japan. An application of hidden cointegration technique," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 1-8.

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