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Are Daily Cross-Border Equity Flows Pushed or Pulled?

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  • John M. Griffin

    (University of Texas at Austin)

  • Federico Nardari

    (Arizona State University)

  • René M. Stulz

    (Ohio State University and NBER)

Abstract

We investigate the conditions under which an intertemporal equilibrium model based on investors' portfolio decisions can explain the dynamics of high-frequency equity flows. Our model shows that, when there are barriers to international investment and when the expectations of foreign investors are more extrapolative than those of domestic investors (either due to foreigners being less informed or for behavioral reasons), unexpectedly high worldwide or local stock returns lead to net equity inflows in small countries. We investigate these predictions using daily data on net equity flows for nine emerging-market countries. Equity flows are positively related to host-country stock returns as well as market performance abroad at daily frequencies. Though these effects are remarkably robust at the daily frequency, they dissipate quickly. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 86 (2004)
Issue (Month): 3 (August)
Pages: 641-657

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Handle: RePEc:tpr:restat:v:86:y:2004:i:3:p:641-657

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