Portfolio flows – exchange rate volatility: is there a puzzling relationship?

Berna Aydoğan and Gülin Vardar

Journal of Economic and Administrative Sciences, 2020, vol. 37, issue 4, 611-642

Abstract: Purpose - This study investigates possible shock transmission and volatility spillover effects among the exchange rate changes and international portfolio flows for United States vis-à-vis two fast-growing emerging country groups: the BRICS (Brazil, Russia, India, China and South Africa) and MINT (Mexico, Indonesia, Nigeria and Turkey). Design/methodology/approach - Applying VAR-BEKK-GARCH model, the evidence indicates that exchange rate fluctuations have a negative impact on net equity flows in Brazil, Russia, India and Turkey; thus, supporting the view that exchange rate uncertainty is an important driver of equity home bias. Findings - As for the comparison of the pre- and post-crisis period, the findings support the evidence that the post-crisis period witnessed a greater number of cases of significant shock and volatility spillovers among exchange rate uncertainty and portfolio flows. Originality/value - Overall, the empirical results provide fresh insights and policy implications for domestic and international investors through investment activities, and for policymakers through maintaining economic and financial stability.

Keywords: International portfolio flows; Exchange rate uncertainty; VAR-BEKK-GARCH; F21; F31; F32; G15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:jeas-02-2020-0021

DOI: 10.1108/JEAS-02-2020-0021

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