Portfolio Flows Global Risk Aversion And Asset Prices In Emerging Markets

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Portfolio Flows Global Risk Aversion And Asset Prices In Emerging Markets

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Author : Nasha Ananchotikul
language : en
Publisher: International Monetary Fund
Release Date : 2014-08-19

Portfolio Flows Global Risk Aversion And Asset Prices In Emerging Markets written by Nasha Ananchotikul and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-08-19 with Business & Economics categories.

In recent years, portfolio flows to emerging markets 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 emerging markets? 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 emerging markets are also found to affect the level of asset prices, as was the case in particular during the global financial crisis.

Portfolio Investment Flows To Emerging Markets

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Author : Sudarshan Gooptu
language : en
Publisher: World Bank Publications
Release Date : 1993

Portfolio Investment Flows To Emerging Markets written by Sudarshan Gooptu and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993 with categories.

Drivers Of Emerging Market Bond Flows And Prices

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Author : Mr. Evan Papageorgiou
language : en
Publisher: International Monetary Fund
Release Date : 2021-12-16

Drivers Of Emerging Market Bond Flows And Prices written by Mr. Evan Papageorgiou and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-12-16 with Business & Economics categories.

An interesting disconnect has taken shape between local currency- and hard currency-denominated bonds in emerging markets with respect to their portfolio flows and prices since the start of the recovery from the COVID-19 pandemic. Emerging market assets have recovered sharply from the COVID-19 sell-off in 2020, but the post-pandemic recovery in 2021 has been highly uneven. This note seeks to answer why. Yields of local currency-denominated bonds have risen faster and are approaching their pandemic highs, while hard currency bond yields are still near their post-pandemic lows. Portfolio flows to local currency debt have similarly lagged flows to hard currency bonds. This disconnect is closely linked to the external environment and fiscal and inflationary pressures. Its evolution remains a key consideration for policymakers and investors, since local markets are the main source of funding for emerging markets. This note draws from the methodology developed in earlier Global Financial Stability Reports on fundamentals-based asset valuation models for funding costs and forecasting models for capital flows (using the at-risk framework). The results are consistent across models, indicating that local currency assets are significantly more sensitive to domestic fundamentals while hard currency assets are dependent on the external risk sentiment to a greater extent. This suggests that the post-pandemic, stressed domestic fundamentals have weighed on local currency bonds, partially offsetting the boost from supportive global risk sentiment. The analysis also highlights the risks emerging markets face from an asynchronous recovery and weak domestic fundamentals.

Theories Of Contagion

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Author : Andreas Vester
language : en
Publisher: diplom.de
Release Date : 2006-10-02

Theories Of Contagion written by Andreas Vester and has been published by diplom.de this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-10-02 with Business & Economics categories.

Inhaltsangabe:Abstract: In recent years academics and policy makers have become more and more interested in the phenomenon of contagion, a concept involving the transmission of a financial crisis from one country to one or more other countries. During the 1990s world capital markets witnessed a number of financial crises. In 1992 the Exchange Rate Mechanism (ERM) crisis hit the European continent. Several countries in Latin America have been rocked during the 1994-95 Tequila crisis, and the Asian Flu spread through East Asian countries in 1997-98 with dramatic social implications. Later in 1998 the famous hedge fund Long Term Capital Management (LTCM) had to file for bankruptcy and the Russian debt failure shocked international capital markets and increased volatility on a global scale. The crisis spread to as far as Brazil in early 1999 and developed markets have become victims as well. The question asked by academics and policy makers is how countries should behave in order to avoid contagion. To answer this question it is necessary to understand the different channels of contagion in greater detail and how a crisis can be transmitted from one country to another. The objective of this paper is to highlight those channels and to present a number of models and theories of contagion, which have recently been developed by academics. In general, there are several strands of theories in the literature that try to explain the transmission of crises. During the mid and late 1990s fundamental-based contagion and spillovers became popular among researchers and policy makers. Furthermore, financial linkages have been known to contribute to contagion. In contrast, in recent years, portfolio flows of international investors moved into the focus of academics. The advocates of fundamental-based contagion and spillovers argue that trade linkages between countries are responsible for contagion. For instance, a devaluation of a country's currency may lead to a negative change in fundamentals of its trading partners. On the other hand, contagion due to financial linkages is mainly explained by the fact that countries share the same banks and therefore have common creditors. A crisis in one country then leads to a deteriorating balance sheet of those common creditors. This in turn may force banks to withdraw money out of other countries in order to avoid further losses, a fact that leads to contagious sellouts. The role of international portfolio flows, which is [...]

Emerging Market Portfolio Flows

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Author : Mr.Serkan Arslanalp
language : en
Publisher: International Monetary Fund
Release Date : 2015-12-17

Emerging Market Portfolio Flows written by Mr.Serkan Arslanalp and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-12-17 with Business & Economics categories.

Portfolio flows to emerging markets (EMs) tend to be correlated. A possible explanation is the role global benchmarks play in allocating capital internationally, the so-called “benchmark effect.” This paper finds that benchmark-driven investors indeed play a large role in a key segment of the market—the EM local currency government bond market—, accounting for more than one third of total foreign holdings as of end-2014. We find that the prominence of these investors declined somewhat after the May 2013 taper tantrum, but remain high. This distinction is important in understanding the drivers of EM capital flows and their sensitivity to different types of shocks. In particular, a high share of benchmark-driven investors may result in capital flows that are more sensitive to global shocks and less sensitive to country factors.

Economics Of Emerging Markets

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Author : Lado Beridze
language : en
Publisher: Nova Publishers
Release Date : 2008

Economics Of Emerging Markets written by Lado Beridze and has been published by Nova Publishers this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Business & Economics categories.

This book presents recent significant research dealing the economics of emerging markets. The term emerging markets is commonly used to describe business and market activity in industrialising or emerging regions of the world. The term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include China, India, Mexico, Brazil, much of Southeast Asia, countries in Eastern Europe, parts of Africa and Latin America. An emerging market is sometimes defined as "a country where politics matters at least as much as economics to the markets."

Changes In The Global Investor Base And The Stability Of Portfolio Flows To Emerging Markets

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Author : Mr.Luis Brandao-Marques
language : en
Publisher: International Monetary Fund
Release Date : 2015-12-28

Changes In The Global Investor Base And The Stability Of Portfolio Flows To Emerging Markets written by Mr.Luis Brandao-Marques and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-12-28 with Business & Economics categories.

An analysis of mutual-fund-level flow data into EM bond and equity markets confirms that different types of funds behave differently. Bond funds are more sensitive to global factors and engage more in return chasing than equity funds. Flows from retail, open-end, and offshore funds are more volatile. Global funds are more stable in their EM investments than “dedicated” EM funds. Differences in the stability of flows from ultimate investors play a key role in explaining these patterns. The changing mix of global investors over the past 15 year has probably made portfolio flows to EMs more sensitive to global financial conditions.

Push Factors And Capital Flows To Emerging Markets

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Author : Mr.Eugenio Cerutti
language : en
Publisher: International Monetary Fund
Release Date : 2015-06-22

Push Factors And Capital Flows To Emerging Markets written by Mr.Eugenio Cerutti and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-06-22 with Business & Economics categories.

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.

Gross Private Capital Flows To Emerging Markets

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Author : Erlend Nier
language : en
Publisher: International Monetary Fund
Release Date : 2014-10-27

Gross Private Capital Flows To Emerging Markets written by Erlend Nier and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-10-27 with Business & Economics categories.

This paper assesses empirically the key drivers of private capital flows to a large sample of emerging market economies in the last decade. It analyzes the effect of the global financial cycle, measured by the VIX, on capital flows and investigates the role of fundamentals and country characteristics in mitigating or amplifying its effect. Using interaction models, we find the effect of the VIX to be non-linear. For low levels of the VIX, capital flows are driven by fundamental factors. During periods of stress, the VIX becomes the dominant driver of capital flows while other determinants, with the exception of interest rate differentials, lose statistical significance. Our results also suggest that the effect of global financial conditions on gross private capital flows increases with the host country’s level of financial sector development. Finally, our results imply that countries cannot fully insulate themselves from global financial shocks, unless creating a fragmented global financial system.

Capital Flows At Risk Taming The Ebbs And Flows

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Author : Mr.R. G Gelos
language : en
Publisher: International Monetary Fund
Release Date : 2019-12-20

Capital Flows At Risk Taming The Ebbs And Flows written by Mr.R. G Gelos and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019-12-20 with Business & Economics categories.

The volatility of capital flows to emerging markets continues to pose challenges to policymakers. In this paper, we propose a new framework to answer critical policy questions: What policies and policy frameworks are most effective in dampening sharp capital flow movements in response to global shocks? What are the near- versus medium-term trade-offs of different policies? We tackle these questions using a quantile regression framework to predict the entire future probability distribution of capital flows to emerging markets, based on current domestic structural characteristics, policies, and global financial conditions. This new approach allows policymakers to quantify capital flows risks and evaluate policy tools to mitigate them, thus building the foundation of a risk management framework for capital flows.