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Impact of central bank independence and transparency on international equity portfolio allocation: A cross-country analysis

Frank O. Kwabi, Agyenim Boateng and Min Du

International Review of Financial Analysis, 2020, vol. 69, issue C

Abstract: In this study, we analyse the effects of central bank independence (CBI) and central bank transparency (CBT) and their interactions with institutional quality on foreign equity portfolio inflows. Employing a dataset from 42 countries over the period from 2001 to 2014, we find strong evidence that independent and transparent central bank has a positive and significant influence on foreign equity investment inflows. Further analysis shows that institutional quality interacts with central bank independence and transparency in attracting foreign equity portfolio. Our results are robust to alternative specifications, endogeneity concerns and that economic policy uncertainty increases asymmetric information and deters foreign equity portfolio investment inflows.

Keywords: Central bank independence; Central bank transparency; Economic policy uncertainty; Foreign equity portfolio flow; Institutional quality (search for similar items in EconPapers)
JEL-codes: G2 G15 F3 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.irfa.2020.101464

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