Global financial shocks and foreign asset repatriation: Do local investors play a stabilizing role?

Gustavo Adler, Marie-Louise Djigbenou and Sebastian Sosa

Journal of International Money and Finance, 2016, vol. 60, issue C, 8-28

Abstract: We study the dynamic response of gross capital flows in emerging market economies to different global financial shocks, using a panel vector-autoregressive (PVAR) approach. Our focus lies primarily on the potentially stabilizing role played by domestic investors in offsetting the response of foreign investors to adverse global shocks. We find that, while foreign investors tend to retrench from emerging markets in response to global risk aversion and monetary policy shocks, foreign asset repatriation by resident investors does not always follow suit. Local investors play a meaningful stabilizing role in the face of global risk aversion shocks, with sizeable asset repatriation largely offsetting the retrenchment of non-residents. In contrast, foreign investor retrenchment in response to global monetary policy shocks is not mirrored by asset repatriation. Finally, we find robust evidence that positive global real shocks tend to have a positive impact on net capital inflows to emerging markets. Our results shed light on the likely impact of the Fed's QE tapering on capital flows to emerging market economies.

Keywords: Capital flows; Gross capital flows; Foreign assets; Global financial shocks (search for similar items in EconPapers)
JEL-codes: F30 F32 F41 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Global Financial Shocks and Foreign Asset Repatriation: Do Local Investors Play a Stabilizing Role? (2016)
Working Paper: Global Financial Shocks and Foreign Asset Repatriation: Do Local Investors Play a Stabilizing Role? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:60:y:2016:i:c:p:8-28

DOI: 10.1016/j.jimonfin.2015.03.007

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