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Daily Cross-Border Equity Flows: Pushed or Pulled?

Author

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  • John M. Griffin
  • Federico Nardari
  • Rene M. Stulz

Abstract

In a model that is consistent with the existence of a home bias and with foreign investors that are less informed than domestic investors, we show that unexpectedly high worldwide returns lead to net equity inflows into small countries. In addition, a small country experiences net equity inflows when its stocks earn unexpectedly high returns. We investigate these predictions using daily data on net equity flows for nine emerging market countries and find that equity flows are positively related to host country stock returns as well as market performance abroad. Both our theoretical model and our empirical analysis show that global stock return performance is an important factor in understanding equity flows.

Suggested Citation

  • John M. Griffin & Federico Nardari & Rene M. Stulz, 2002. "Daily Cross-Border Equity Flows: Pushed or Pulled?," NBER Working Papers 9000, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9000
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    References listed on IDEAS

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    Cited by:

    1. Garg, Reetika & Dua, Pami, 2014. "Foreign Portfolio Investment Flows to India: Determinants and Analysis," World Development, Elsevier, vol. 59(C), pages 16-28.
    2. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    3. P. Srinivasan & M. Kalaivani, 2015. "Determinants of Foreign Institutional Investment in India: An Empirical Analysis," Global Business Review, International Management Institute, vol. 16(3), pages 364-376, June.
    4. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
    5. Rui Albuquerque & Gregory Bauer & Martin Schneider, 2004. "International Equity Flows and Returns: A Quantitative Equilibrium Approach," International Finance 0405006, University Library of Munich, Germany.
    6. Faisal Ahmed & Rabah Arezki & Norbert Funke, 2007. "The composition of capital flows to South Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(2), pages 275-294.
    7. Lin, Anchor Y., 2006. "Has the Asian crisis changed the role of foreign investors in emerging equity markets: Taiwan's experience," International Review of Economics & Finance, Elsevier, vol. 15(3), pages 364-382.
    8. Poonam Gupta & James P. F. Gordon, 2003. "Portfolio Flows Into India; Do Domestic Fundamentals Matter?," IMF Working Papers 03/20, International Monetary Fund.
    9. Kenneth A. Froot & Tarun Ramadorai, 2002. "Currency Returns, Institutional Investor Flows, and Exchange Rate Fundamentals," NBER Working Papers 9080, National Bureau of Economic Research, Inc.
    10. Lin, Anchor Y. & Swanson, Peggy E., 2008. "U.S. investors and global equity markets," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 83-107.
    11. Kenneth A. Froot & Paul G. J. O'Connell, 2003. "The Risk Tolerance of International Investors," NBER Working Papers 10157, National Bureau of Economic Research, Inc.
    12. Chayawadee Chai-Anant & Corinna Ho, 2008. "Understanding Asian equity flows, market returns and exchange rates," BIS Working Papers 245, Bank for International Settlements.
    13. Bekaert, Geert & Harvey, Campbell R., 2002. "Research in emerging markets finance: looking to the future," Emerging Markets Review, Elsevier, vol. 3(4), pages 429-448, December.
    14. Ayhan Kose & Kenneth Rogoff & Eswar S Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
    15. Amita Batra, 2003. "The Dynamics of foreign portfolio inflows and equity returns in India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 109, Indian Council for Research on International Economic Relations, New Delhi, India.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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