What Makes Hot Money Hot? The Relative Volatility of International Flows of Debt and Equity Capital

Michael J. Brennan and Carmen Aranda
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Michael J. Brennan: University of California, Los Angeles, USA;
Carmen Aranda: University of Navarre, and Visiting Scholar, University of California, Los Angeles, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 1999, vol. 02, issue 04, 427-451

Abstract: This paper is concerned with the relative volatility of international flows of debt and equity capital. It is shown that if foreign investors are less well informed about the domestic economy than domestic investors, then international flows of debt capital will be more volatile than flows of equity capital in the sense that the proportional change of foreign bondholdings in an economy in response to a change in that economy's economic prospects will be greater than the proportional change in foreign stockholdings. This is shown to be consistent with the behavior of international flows of debt and equity capital during the Asian crisis.

JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 1999
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DOI: 10.1142/S0219091599000230

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