Cross-Border Capital Flows and Return Dynamics in Emerging Stock Markets: Relative Roles of Equity and Debt Flows

Deven Bathia (), Christos Bouras (), Riza Demirer and Rangan Gupta
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Deven Bathia: Queen Mary University of London, School of Business and Management, Mile End Road, London, E1 4NS, United Kingdom
Christos Bouras: Department of Banking and Financial Management, University of Piraeus, 80, M. Karaoli & A. Dimitriou St., 18534 Piraeus, Greece

No 201937, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the wealth and risk effects of cross-border capital flows on emerging stock markets by distinguishing between equity and debt flows and using a panel GARCH approach. We find that both equity and debt flows possess incremental information over emerging stock market returns and volatility that is not captured by aggregate capital market risk factors. While the explanatory power of debt flows is relatively stronger and more robust, even after controlling for world market return, volatility as well as leverage and asymmetric effects, we find that equity flows assume significant explanatory power, particularly during the post-global financial crisis period. Further analysis also shows that changes in debt flows can serve as a significant determinant of crash risks in emerging stock markets. Finally, our findings indicate a robust effect of debt flows on idiosyncratic risks at the country level with significant implications for asset valuations in emerging stock markets.

Keywords: Cross-border portfolio flows; emerging stock markets; panel GARCH (search for similar items in EconPapers)
JEL-codes: C22 F00 G15 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2019-05
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (1)

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Journal Article: Cross-border capital flows and return dynamics in emerging stock markets: Relative roles of equity and debt flows (2020)
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