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Are Foreign Institutional Investors Good for Emerging Markets?

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  • Michael Frenkel
  • Lukas Menkhoff

Abstract

Portfolio flows channelled via institutional investors were the most dynamic capital flows to emerging markets in the 1990s. We use an asymmetric information framework to derive five propositions about the effects of the activities of foreign institutional investors on emerging markets. We confront these propositions with existing empirical evidence on the financial sector of emerging markets and conclude that institutional investors do not automatically generate benefits for emerging markets. Therefore, capital account and financial market liberalisation needs to be accompanied by careful regulation. Copyright 2004 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 27 (2004)
Issue (Month): 8 (08)
Pages: 1275-1293

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Handle: RePEc:bla:worlde:v:27:y:2004:i:8:p:1275-1293

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Cited by:
  1. Olaf Hübler & Lukas Menkhoff & Chodechai Suwanaporn, 2008. "Financial Liberalisation in Emerging Markets: How Does Bank Lending Change?," The World Economy, Wiley Blackwell, vol. 31(3), pages 393-415, 03.
  2. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.
  3. Anna Zalewska, 2006. "Is Locking Domestic Funds into the Local Market Beneficial? Evidence from the Polish Pension Reforms," The Centre for Market and Public Organisation 06/153, Department of Economics, University of Bristol, UK.
  4. Ian Goldin & Kenneth Reinert, 2005. "Global capital flows and development: A Survey," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(4), pages 453-481.
  5. Zalewska, Anna, 2006. "Is locking domestic funds into the local market beneficial? Evidence from the Polish pension reforms," Emerging Markets Review, Elsevier, vol. 7(4), pages 339-360, December.
  6. Diego Alonso Agudelo Rueda & Milena Castaño, 2011. "Do foreign portfolio flows increase risk in emerging stock markets? Evidence from six Latin American countries 1999 -2008," DOCUMENTOS DE TRABAJO CIEF 010663, UNIVERSIDAD EAFIT.

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