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The persistence of emerging market equity flows

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  • Froot, Kenneth A.
  • Tjornhom Donohue, Jessica

Abstract

The portfolio flows of institutional investors have been found to be highly persistent across countries and individual investment funds. This paper investigates the source of this persistence in emerging market equities. We employ the decomposition methodology of Froot and Tjornhom (2002), which decomposes the persistence of flows into four components: (i) own-country, own-fund persistence (which might arise from informed trading within each country by individual funds); (ii) own-country, cross-fund persistence (which might arise from asynchronicities across funds); (iii) cross-country, own-fund persistence (which might arise from asynchonicities within a fund) and (iv) cross-country, cross-fund persistence (which might arise from other reaction lags such as contagion across both countries and funds). We find evidence that all four components are positive in emerging markets. Our results differ from those in developed countries, in that we attribute approximately 10%-20% of total persistence to cross-country effects (iii) and (iv). These findings are consistent with stories of contagion, which suggest that demand shifts move predictably from one country to another. They cannot easily be explained by informed trading alone or by wealth effects.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 3 (2002)
Issue (Month): 4 (December)
Pages: 338-364

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Handle: RePEc:eee:ememar:v:3:y:2002:i:4:p:338-364

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Web page: http://www.elsevier.com/locate/inca/620356

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Cited by:
  1. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.
  2. Ladekarl, Jeppe & Zervos, Sara, 2004. "Housekeeping and plumbing: the investability of emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 5(3), pages 267-294, September.
  3. Reena Aggarwal & Leora Klapper & Peter D. Wysocki, 2003. "Portfolio preferences of foreign institutional investors," Policy Research Working Paper Series 3101, The World Bank.
  4. Ladekarl, Jeppe & Zervos, Sara, 2004. "Housekeeping and plumbing - the investability of emerging markets," Policy Research Working Paper Series 3229, The World Bank.

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