Are Foreign Institutional Investors Good for Emerging Markets?

Michael Frenkel and Lukas Menkhoff

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: Portfolio flows channeled via institutional investors were the most dynamic capital flows to emerging markets in the 1990s. We use an asymmetric information framework to derive five propositions, to integrate empirical evidence and to suggest policy implications. Opaque information in emerging markets hinders foreign market entrants. Moreover, following financial opening, institutional investors can worsen the position of local investors due to unintentionally creating unbalanced diversification and obscure risks. Finally, foreign institutional investors often amplify investment booms and financial contagion. Therefore, capital account and financial market liberalization needs to be accompanied by careful regulation.

Keywords: Portfolio Flows; Institutional Investors; Emerging Markets; Asymmetric Information; International Capital Flows (search for similar items in EconPapers)
JEL-codes: F32 O16 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-09
New Economics Papers: this item is included in nep-ifn, nep-mfd and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Are Foreign Institutional Investors Good for Emerging Markets? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-283

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