Daily Cross-Border Equity Flows: Pushed or Pulled?
Dice Working Paper No. 2002-6; AFA 2003 Washington, DC Meetings
59 Pages Posted: 8 Mar 2002
There are 2 versions of this paper
Daily Cross-Border Equity Flows: Pushed or Pulled?
Daily Cross-Border Equity Flows: Pushed or Pulled?
Date Written: May 30, 2002
Abstract
In a model that is consistent with the existence of a home bias and with foreign investors that are less informed than domestic investors, we show that unexpectedly high worldwide returns lead to net equity inflows into small countries. In addition, a small country experiences net equity inflows when its stocks earn unexpectedly high returns. We investigate these predictions using daily data on net equity flows for nine emerging market countries and find that equity flows are positively related to host country stock returns as well as market performance abroad. Both our theoretical model and our empirical analysis show that global stock return performance is an important factor in understanding equity flows.
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