Are determinants of portfolio flows always the same? - South African results from a time varying parameter VAR model

Haakon Kavli and Nicola Viegi

MPRA Paper from University Library of Munich, Germany

Abstract: The literature on determinants of cross-border capital flows has consistently assumed the determinants of such flows to be constant throughout the sample. This paper investigates this notion by estimating the time varying relationship between portfolio flows to South Africa and two widely accepted determinants of such flows: the sovereign spread and global risk (measured by the CBOE Volatility Index, henceforth VIX). The results show that the time variation is highly significant and a constant parameter model will give biased estimates of the effects of risk on capital flows. The paper also gives important insights to South African policy makers and financial practitioners: Bond flows (non-resident purchases of South African bonds) have become more sensitive to the VIX after 2010. Share flows were particularly sensitive at the peak of the 2008 global financial crisis, but have at other times not responded in a statistically significant manner to changes in global risk. The relationships are estimated using a time varying parameter vector autoregressive (TVP VAR) model with stochastic volatility

Keywords: Portfolio flows; emerging markets; South Africa; time varying VAR (search for similar items in EconPapers)
JEL-codes: C32 F3 F32 (search for similar items in EconPapers)
Date: 2015-09-01
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Related works:
Journal Article: Are Determinants of Portfolio Flows Always the Same? - South African Results from a Time Varying Parameter Var Model (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:66897

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