International Capital Flow in a Period of High Inflation: The Case of China

Qiming Liu, Zhenya Liu, Yuhao Mu and Faten Moussa
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Qiming Liu: Renming University of China
Zhenya Liu: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Yuhao Mu: Renming University of China
Faten Moussa: South Mediterranean University, Mediterranean School of Business

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Abstract: This study investigates the behavior of international capital flows by considering northbound capital flows into China's A-share market\textemdasha market where northbound capital is widely viewed as synonymous with ``smart money''. However, since the outbreak of COVID-19, the global economy has undergone a period of high inflation and stocks are considered overweight by international investors. We therefore explore whether the predictive power of northbound capital changes during high-inflation periods. Using a threshold regression model, we find that northbound capital only has predictive power when the global inflation level is low. We also explore the relationship between northbound capital and global risk and demonstrate that the weakened predictive power of northbound capital in our sample is independent of high global risk. Thus, overall, this study finds that the role of northbound capital in China's A-share market is closely related to inflation and to the global economic environment. \textcopyright 2023 Elsevier B.V.

Keywords: Autoregressive model; High inflation; Leading indicator; Northbound capital; Threshold regression (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

Published in Research in International Business and Finance, 2024, 67, ⟨10.1016/j.ribaf.2023.102070⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04432406

DOI: 10.1016/j.ribaf.2023.102070

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