Modeling the Demand for Emerging Market Assets
AbstractThis paper addresses the problem of estimating the aggregate international demand schedule for emerging market (EM) securities as an asset class. The standard Ã¢â‚¬Ëœpush-pullÃ¢â‚¬â„¢ model of capital flows is modified by reference to recent work on portfolio choice in the context of credit rationing leading to a simultaneous equation model that determines EM yield and capital flows together. Interaction effects include lagged flows and yields to reflect herding and asset bubbles, with a time-varying risk aversion variable affecting yields and flows. This model is then tested on monthly data for US bond purchases, using the General-to-Specific Approach (GETS) to find significant variables, lags, and shock dummies for yield spread and bond flows separately; followed by a Full Information Maximum Likelihood (FIML) estimation of the two equations together. The results are robust and give a very good fit for both yields and flows, contributing a valuable insight into the dominant impact of short-term shifts in the demand schedule on emerging markets.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2003-FE-10.
Date of creation: 01 Apr 2003
Date of revision:
asset demand; international finance; capital flows; emerging markets; financial stability;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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- Sandra Lizarazo, 2009.
"Default Risk and Risk Averse International Investors,"
Working Papers, Centro de Investigacion Economica, ITAM
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- Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, Elsevier, vol. 89(2), pages 317-330.
- Lizarazo, Sandra, 2010. "Default Risk and Risk Averse International Investors," MPRA Paper 20794, University Library of Munich, Germany.
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