A Study on Relationship of Foreign Net-Fund-Flow and the Index of Stock Market in Thailand

Abstract

The activities of investors create movements in funds; in other words, they cause funds to flow. The fund flow indicates the demand from investors on the stock market of a country. It also shows the demand for the stocks in the market. When funds flow into the market, there is more demand on purchasing. On the other hand, when funds flow out, it occurs together with stock selling or lower demand on stock purchasing. Since the stock market in Thailand is liberalized, opening up opportunities towards foreigners to invest in the market, the foreign investors in Thailand become the second biggest player in Thailand’s stock market. As long as the market is liberalized to foreign investors, they will continue to speculate on the prices of stocks because the dividend yield of the stocks in the market will have decreased as time goes by. So it can be seen that the fund from foreign investors have more activities. This study tries to investigate the relationship between the foreign net fund flows and the SET Index. The SET Index will be used as a proxy of market return because the SET Index, or the Stock Exchange of Thailand, is calculated from the prices of all stocks listed for trading in the market. The result of this study shows that the foreign fund flows and the SET Index have a positive relationship despite an unexpected error in statistical equations shown by the value of R-Square. Furthermore, from the study, it can be clearly seen that the SET Index movement continues in the same direction in the long run even though it can move in the different direction during the short run period.