This study focuses on the behavior of non-resident investors during the Russian financial crisis of 1997–1998. Two hypotheses that explain the destabilizing behavior of non-residents were considered and tested. First, non-residents had relatively more attractive alternative investment opportunities than residents, which explains their overreaction to changes in market fundamentals. Second, non-residents imitated the actions of a leader — the largest foreign investor (herding behavior). Results of the empirical testing of the theoretical implications suggest that the first hypothesis does not fully explain all the stylized facts. We found that the actions of the leader had a significant impact on other non-residents’ actions, which supports the herding behavior hypothesis.
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Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number
2k-12e.
Length: 53 pages Date of creation: 30 Mar 2001 Date of revision: Handle: RePEc:eer:wpalle:2k-12e
Contact details of provider: Postal: EERC Research Network, Russia and CIS, 47, Nakhimovsky pr-t, suite 919, Moscow, 117418 Russia Phone: +7(095)332-4415 Fax: +1(202)478-1968 Web page: http://www.eerc.ru
Find related papers by JEL classification: F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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