Portfolio Flows into Indonesia: Push or Pull?

Chaikal Nuryakin, Edith Zheng Wen Yuan and I Gede Putra Arsana
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Edith Zheng Wen Yuan: Department of Economics, Universitas Indonesia
I Gede Putra Arsana: Finance and Market, World Bank Group Indonesia

Economics and Finance in Indonesia, 2016, vol. 62, 121-126

Abstract: This paper focuses on the dynamic of the portfolio flows into Indonesia. The result of Structural Vector Autoregression (SVAR) model reveals that push factors is more dominant than pull factors in explaining portfolio flows into Indonesia. Portfolio flows into Indonesia are positively correlated with regional’s stock market performance and negatively correlated to the federal funds rate. On the pull factors, domestic risk (the Credit Default Swap spread) is more dominant than domestic return (the BI rate) in explaining the flows.Thus, it is important for authorities to have more focus on domestic risk–relative to rate of return–in managing portfolio flows. In addition, the negative impact of the lagged Indonesia stock market index to the capital flowsindicates a counter cyclical investment behavior of global investors.

Keywords: Portfolio Flows; VAR (search for similar items in EconPapers)
JEL-codes: F32 G11 (search for similar items in EconPapers)
Date: 2016
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