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Push Factors and Capital Flows to Emerging Markets; Why Knowing Your Lender Matters More Than Fundamentals

Eugenio Cerutti, Stijn Claessens () and Damien Puy ()

No 15/127, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the behavior of gross capital inflows across 34 emerging markets (EMs). We first confirm that aggregate inflows to EMs co-move considerably. We then report three findings: (i) the aggregate co-movement conceals significant heterogeneity across asset types as only bank-related and portfolio bond and equity inflows do co-move; (ii) while global push factors in advanced economies mostly explain the common dynamics, their relative importance varies by type of flow; and (iii) the sensitivity to common dynamics varies significantly across borrower countries, with market structure characteristics (especially the composition of the foreign investor base and the level of liquidity) rather than borrower country’s institutional fundamentals strongly affecting sensitivities. Countries relying more on international funds and global banks are found to be more sensitive to push factors. Our findings suggest that EMs need to closely monitor their lenders and investors to assess their inflow exposures to global push factors.

Keywords: Cross country analysis; Capital inflows; Capital flows; Emerging markets; Sensitivity analysis; Mutual funds; International banks; International financial markets; Push factors, global banks, markets, portfolio, Financial Aspects of Economic Integration, Portfolio Choice, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-pr~
Date: 2015-06-22
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