International Portfolio Investment Behavior : Relationship between Bond and Equity Flows (in Korean)

This paper analyzes the impacts of global and domestic factors on international portfolio investment in Asian emerging economies, with a focus on the relationship between bond and equity flows. The results of estimation based on a Bayesian panel VAR model show that the key factors driving them differ depending upon the type of investment flows. To be specific, bond flows are affected more by interest rate differentials, while equity flows respond more elastically to agents' economic expectations for the real economy and the value of the currency. It is also estimated that the relationship between the two types of flows varies in line with the sources of global and domestic shocks. They have moved in similar fashions in response to global shocks, both showing increased inflows when the U.S. economy has improved and moving out when the international financial markets have become unstable. In the event of domestic interest rate shocks, bond inflows have risen while equity inflows have declined, indicating a rotation phenomenon. Lastly, Asian countries have experienced general outflows of bond funds in response to U.S. interest rate hikes. However, outflows from them of equity funds have varied depending upon the prospects for individual countries' real economies. The above findings imply that, although global shocks could lead to greater macroeconomic volatility due to the co-movements of bond and equity flows into Asia, external shocks arising from such co-movements could be mitigated through appropriate policy responses, which have different impacts on bond and equity flows.