Equity and bond flows to Latin America and Asia: the role of global and country factors

International fund investment and local market returns

“…Brennan and Aranda (1999) show that due to information asymmetry during the Asian crisis, the proportional change of foreign bondholdings in an economy in response to a change in that economy's economic prospects was greater than the proportional change in foreign stockholdings. Chuhan et al (1998) find that equity flows are more sensitive than bond flows to global factors but that bond flows are generally more sensitive to a country's credit rating and secondary market debt price. 15 Table 4b Structural panel VAR estimates.…”

What drives international portfolio flows?

“…Understanding the dynamic determinants of international portfolio ‡ows can help countries design an e¤ective policy mix that may consist of structural reforms, targeted macroeconomic policies or capital controls. 1 The literature typically distinguishes between two types of determinants for international capital ‡ows: push factors and pull factors (see, e.g., Calvo, Leiderman and Reinhart, 1996;Fernandez-Arias, 1996;Taylor and Sarno, 1997;Agénor, 1998;Chuhan, Claessens and Mamingi, 1998;Forbes and Warnock, 2012;Fratzscher, 2012;Fuertes, Phylaktis and Yan, this issue). 2 Push factors re ‡ect the global economic forces that push capital ‡ows from the US to other 1 For instance, countries may implement a combination of the following: structural reforms that increase the capacity of their domestic capital markets or improve the transparency of the regulatory framework; macroeconomic policies such as accumulating reserves or allowing their currency to appreciate; and di¤erent types of capital controls such as discriminating …nancial activity on the basis of residency, di¤erentiating transactions on the basis of currency or imposing minimum holding periods and taxes in certain investments (International Monetary Fund, 2011).…”

The pecking order of cross-border investment

“…On the other hand, portfolio investment flows are considered to be more volatile, may exacerbate the magnitude of business cycles and also induce or at least worsen financial crises (e.g. Claessens, Dooley and Warner 1995;Chuhan, Claessens and Mamingi 1998;Sarno and Taylor 1999).…”