The Portfolio Flows of International Investors, I

Kenneth Froot, Paul G.J. O'Connell and Mark S. Seasholes

No 6687, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores the behavior of daily, international portfolio flows into and out of 46 countries from 1994 through 1998. Our data are from State Street Bank & Trust and encompass over 3 million trades by client institutions. We find a number of interesting facts. First, we detect regional factors within the flows. Second, the flows are strongly persistent -- the persistence decays only slowly over time. Third, flows are strongly influenced by past returns, so that investor trend-following is apparent. Fourth forecasting power for future emerging market returns, but not for developed country returns. Fifth, we find the sensitivity of local stock prices to foreign inflows to be positive and determine that transitory inflows impact future returns negatively. Finally, we examine and reject that the positive covariance of returns and inflows is associated with an information disadvantage on the part of international investors.

Date: 1998-08
New Economics Papers: this item is included in nep-ifn
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Published as Froot, Kenneth A., Paul G. J. O'Connell and Mark S. Seasholes. "The Portfolio Flows Of International Investors," Journal of Financial Economics, 2001, v59(2,Feb), 151-193.

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Journal Article: The portfolio flows of international investors (2001)
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