The Relationship Between Stock Market Movements and Equity Mutual Funds in Pakistan: Evidence from KSE-100 Index

Abstract

This research paper studies the causal relationship between Pakistan Stock Exchange and Mutual Fund Industry in Pakistan. KSE100 – Index and Equity mutual funds has been selected as benchmark to check the relationship between them. A causality and Vector Auto Regression technique has been used to see the impact of stock returns over mutual funds flows and vice versa. The Johansen test showed that variables under study are not cointegrated in long run. Granger causality and Vector Auto regression Model test shows unidirectional relationship of KSE100 index over Mutual fund flows. KSE100 index return significantly affected by its own lags and mutual funds lags, although impact of mutual funds lags and KSE100 index lags on Mutual fund flow is not significant. Based on results it could be concluded that improved Pakistan stock exchange performance improves the performance of mutual fund industry in Pakistan.