The Effect of Monetary and Fiscal Policy on Bond Mutual Funds and Stock Market: An International Comparison

Abstract

This study examines the relationship between bond fund flows, stock market returns and financial policies in developed and developing economies. The findings suggest a bidirectional (negative) relationship between bond flows and market returns in the presence of fiscal and monetary policy for developed countries. However, in the case of developing countries, bond flows follow the previous performance of market returns. Moreover, an expansionary monetary stance has a negative impact on bond flows while an expansionary fiscal policy exerts a positive influence on them. In addition, bond funds flourish in times of low economic activity in both developed and developing countries.

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