Modelling the Time Varying Determinants of Portfolio Flows to Emerging Markets
23 Pages Posted: 19 Oct 2011 Last revised: 26 Aug 2012
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Modelling the Time Varying Determinants of Portfolio Flows to Emerging Markets
Date Written: August 23, 2012
Abstract
This paper studies how the drivers of portfolio flows change across periods with a model where regression coefficients endogenously change over time in a continuous fashion. The empirical analysis of daily equity portfolio flows to emerging markets shows that the regression coefficients display substantial time variation. Major changes in the importance of the drivers of the flows coincide with important market events/shocks. Overall, investors pay more attention to regional developments in emerging markets in periods when market tensions are elevated. However, extreme tensions generate panics, i.e. periods when changes in uncertainty and risk aversion drive flows, while regional developments play only a marginal role.
Keywords: capital flows, emerging markets, financial crisis, push factors, pull factors
JEL Classification: F32, F34, G01, G11
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