Wilshire 5000. It is common economic theory that the money flowing into and out of mutual funds (fund flows) is related to the performance of the stock market. Another way of stating this is that investors are more likely to place money into mutual funds when the market is performing well. One way to measure market performance is the Wilshire 5000 Total Market Return (%), which is a valueweighted return. (The return of each stock in the index is weighted by its percent of market value for all stocks.)

Here are the scatterplot and regression analysis. The data are recorded monthly. The response variable is Fund Flows

($ million) and the explanatory variable is Market Return

(%), using data from January 1990 to October 2002.

a) State the null and alternative hypotheses under investigation.

b) Assuming that the assumptions for regression inference are reasonable, test the hypothesis.

c) State your conclusion.

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Fund Flows ($M) 50,000 25,000 -25,000 -50,000 0- -15 -10 -5 0 5 10 Market Return (%) Dependent variable is: Fund Flows R squared 17.9% s=10999 with 154-2 152 degrees of freedom Variable Coeff SE(Coeff) t-ratio P-value Intercept 9599.10 896.9 10.7 0.0001 Market Return 1156.40 201.1 5.75 0.0001