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Global Risk and Portfolio Flows to Emerging Markets: Evidence from Irish-Resident Investment Funds

Benedetta Bianchi (), Vahagn Galstyan and Valerie Herzberg
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Valerie Herzberg: Central Bank of Ireland

No 13/RT/20, Research Technical Papers from Central Bank of Ireland

Abstract: In this paper we analyse the behaviour of investment fund flows to emerging markets after the Global Financial Crisis (GFC). Our data points towards a structural growth in investment funds that purchase debt rather than equity securities. Empirically, we find that debt flows have higher sensitivity to global risk than equity flows, suggesting an increasing policy focus primarily on debt funds. We also show that Irish-resident funds’ sensitivity to changes in global risk sentiment co-varies negatively with a measure of sovereign credit rating of the receiving emerging market economy, a finding consistent with a notion that good fundamentals in host countries can mitigate outflows arising from swings in external funding conditions. Finally, we show that funds whose equity structure is tilted towards investors residing further away tend to invest less in countries than funds whose investors are closer to the same countries. This is noteworthy, given these results refer to Irish-resident investment funds that intermediate global financial flows.

Keywords: Investment Funds; Financial Flows; Emerging Markets; VIX. (search for similar items in EconPapers)
JEL-codes: F20 F32 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-cba and nep-ifn
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