Smart Money Effect and Market Volatility－A study on Equity Mutual Funds in Taiwan

The thesis investigates whether the smart money effect exists in the Taiwan mutual fund market. In addition, the paper examines whether market volatility affects the smart money effect. Here are two steps: (1) use fund flow and fund performance data of equity mutual funds in Taiwan to measure if the smart money effect exists; (2) consider market volatility factor to take a look at the relationship between the smart money effect and market volatility. This study shows that (1) the smart money effect does not exist over the sample period, and (2) although the smart money effect does not hold, market volatility raises the excess return of fund portfolios.