EconPapers    
Economics at your fingertips  
 

International Portfolio Flows and Exchange Rate Volatility for Emerging Markets

Guglielmo Maria Caporale, Faek Menla Ali, Fabio Spagnolo and Nicola Spagnolo

No 1519, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper investigates the effects of equity and bond portfolio inflows on exchange rate volatility, using monthly bilateral data for the US vis-a-vis eight Asian developing and emerging countries (India, Indonesia, South Korea, Pakistan, Hong Kong, Thailand, the Philippines, and Taiwan) over the period 1993:01-2012:11, and estimating a time-varying transition probability Markov-switching model. We find that net equity (bond) inflows drive the exchange rate to a high (low) volatility state. In particular, net bond inflows increase the probability of remaining in the low volatility state in the case of Pakistan, Thailand, and the Philippines, whilst they increase the probability of staying in the high volatility state in the case of Indonesia. Finally, net equity inflows from India, Indonesia, South Korea, Hong Kong, and Taiwan towards the US also increase the probability of staying in the high volatility state. These findings can be plausibly interpreted in terms of the "return-chasing" hypothesis and suggest that credit controls on portfolio flows could be an effective tool to stabilise the foreign exchange market.

Keywords: Bond flows; Equity flows; Exchange rates; Regime switching (search for similar items in EconPapers)
JEL-codes: F31 F32 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-mon and nep-sea
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.diw.de/documents/publikationen/73/diw_01.c.519962.de/dp1519.pdf (application/pdf)

Related works:
Working Paper: International Portfolio Flows and Exchange Rate Volatility for Emerging Markets (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1519

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().

 
Page updated 2019-04-20
Handle: RePEc:diw:diwwpp:dp1519