Portfolio capital flows and the US dollar exchange rate: Viewed from the lens of time and frequency dynamics of connectedness

Mangal Goswami, Victor Pontines and Yassier Mohammed

International Review of Financial Analysis, 2023, vol. 89, issue C

Abstract: This study uses proprietary data on daily net non-resident portfolio flows to emerging markets to analyse the interconnectedness of non-resident debt and equity portfolio flows under different market conditions. We find that there is less interconnectedness during normal times but increased interconnectedness during periods of uncertainty and stress, suggesting an asymmetry in the spillovers of these portfolio flows. Importantly, we find that shocks in the broad EM US dollar exchange rate are a net transmitter of shocks to debt and equity portfolio flows of EM economies. Our analysis, based on the net directional spillover index, shows that this effect is most pronounced during the COVID-19 pandemic. Furthermore, using a frequency domain approach to connectedness, we find that the broad EM US dollar exchange rate is a net transmitter of shocks to the EM economies’ debt and equity flows, with the impact hitting portfolio capital flows within at least a week to 100 days. Our results suggest that pre-emptive macroprudential policy measures and better risk monitoring can improve the resilience of borrowers and investors in EM economies during times of global shocks, particularly during US dollar appreciations when portfolio flows tend to reverse.

Keywords: Portfolio debt flows; Portfolio equity flows; Connectedness; Directional spillover (search for similar items in EconPapers)
JEL-codes: C58 F31 F41 G15 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521923002703
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Portfolio capital flows and the US dollar exchange rate: Viewed from the lens of time and frequency dynamics of connectedness (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923002703

DOI: 10.1016/j.irfa.2023.102754

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().