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Capital Flows and the Behavior of Emerging Market Equity Returns

  • Geert Bekaert
  • Campbell R. Harvey

Foreign portfolio flows may reflect deep changes in the functioning of an emerging market economy and its capital markets. Using a database of monthly net U.S. equity flows, we investigate the relation of these flows to the behavior of equity returns, the structural characteristics of the capital markets, exchange rates, and the strength of the economy. We find that increases in equity flows are associated with a lower cost of capital, higher correlation with world market returns, lower asset concentration, lower inflation, larger market size relative to GDP, more trade, and slightly higher per capita economic growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6669.

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Date of creation: Jul 1998
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Publication status: published as Bekaert, Geert and Campbell R. Harvey. "Foreign Speculators And Emerging Equity Markets," Journal of Finance, 2000, v55(2,Apr), 565-613.
Handle: RePEc:nbr:nberwo:6669
Note: AP IFM
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  3. Bacchetta, Philippe & van Wincoop, Eric, 1998. "Capital Flows to Emerging Markets: Liberalization, Overshooting and Volatility," CEPR Discussion Papers 1889, C.E.P.R. Discussion Papers.
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  5. Leonardo Bartolini & Allan Drazen, 1996. "Capital Account Liberalization as a Signal," NBER Working Papers 5725, National Bureau of Economic Research, Inc.
  6. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
  7. Takatoshi Ito, 2000. "Capital Flows in Asia," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 255-296 National Bureau of Economic Research, Inc.
  8. Demirguc-Kunt, Ash & Maksimovic, Vojislav, 1996. "Stock Market Development and Financing Choices of Firms," World Bank Economic Review, World Bank Group, vol. 10(2), pages 341-69, May.
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  12. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
  13. Geert Bekaert & Campbell R. Harvey, 1994. "Time-Varying World Market Integration," NBER Working Papers 4843, National Bureau of Economic Research, Inc.
  14. Levine, Ross & Zervos, Sara, 1996. "Stock market development and long-run growth," Policy Research Working Paper Series 1582, The World Bank.
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