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Portfolio Flows, Global Risk Aversion and Asset Prices in Emerging Markets

Nasha Ananchotikul and Longmei Zhang
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Longmei Zhang: International Monetary Fund

PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: In recent years, portfolio flows to emerging markets (EMs) have become increasingly large and volatile. Using weekly portfolio fund flows data, the paper finds that their short-run dynamics are driven mostly by global "push" factors. To what extent do these cross-border flows and global risk aversion drive asset volatility in EMs? We use a Dynamic Conditional Correlation (DCC) Multivariate GARCH framework to estimate the impact of portfolio flows and the VIX index on three asset prices, namely equity returns, bond yields and exchange rates, in 17 emerging economies. The analysis shows that global risk aversion has a significant impact on the volatility of asset prices, while the magnitude of that impact correlates with country characteristics, including financial openness, the exchange rate regime, as well as macroeconomic fundamentals such as inflation and the current account balance. In line with earlier literature, portfolio flows to EMs are also found to affect the level of asset prices, as was the case in particular during the global financial crisis.

Keywords: Portfolio Flows; Global Risk Aversion; Asset Prices, Exchange Rate (search for similar items in EconPapers)
JEL-codes: G11 G14 F37 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016-07, Revised 2016-07
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Published in PIER Discussion Paper Series

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https://www.pier.or.th/wp-content/uploads/2016/07/pier_dp_036.pdf Published version, 2016 (application/pdf)

Related works:
Working Paper: Portfolio Flows, Global Risk Aversion and Asset Prices in Emerging Markets (2014) Downloads
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