Are Foreign Institutional Investors Good for Emerging Markets?
AbstractPortfolio flows channeled 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, to integrate empirical evidence and to suggest policy implications. Opaque information in emerging markets hinders foreign market entrants. Moreover, following financial opening, institutional investors can worsen the position of local investors due to unintentionally creating unbalanced diversification and obscure risks. Finally, foreign institutional investors often amplify investment booms and financial contagion. Therefore, capital account and financial market liberalization needs to be accompanied by careful regulation.
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Bibliographic InfoPaper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover with number dp-283.
Length: 30 pages
Date of creation: Sep 2003
Date of revision:
Portfolio Flows; Institutional Investors; Emerging Markets; Asymmetric Information; International Capital Flows;
Other versions of this item:
- Michael Frenkel & Lukas Menkhoff, 2004. "Are Foreign Institutional Investors Good for Emerging Markets?," The World Economy, Wiley Blackwell, vol. 27(8), pages 1275-1293, 08.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-09-08 (All new papers)
- NEP-IFN-2003-09-08 (International Finance)
- NEP-MFD-2003-09-08 (Microfinance)
- NEP-PKE-2003-09-08 (Post Keynesian Economics)
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