IDEAS home Printed from https://ideas.repec.org/p/sbs/wpsefe/2003fe10.html
   My bibliography  Save this paper

Modeling the Demand for Emerging Market Assets

Author

Listed:
  • Valpy FitzGerald
  • Derya Krolzig

Abstract

This paper addresses the problem of estimating the aggregate international demand schedule for emerging market (EM) securities as an asset class. The standard ‘push-pull’ 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.

Suggested Citation

  • Valpy FitzGerald & Derya Krolzig, 2003. "Modeling the Demand for Emerging Market Assets," OFRC Working Papers Series 2003fe10, Oxford Financial Research Centre.
    • Handle: RePEc:sbs:wpsefe:2003fe10
    as

    Download full text from publisher

    File URL: http://www.finance.ox.ac.uk/file_links/finecon_papers/2003fe10.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Reinhart, Carmen & Montiel, Peter, 2001. "The Dynamics of Capital Movements to Emerging Economies During the 1990s," MPRA Paper 7577, University Library of Munich, Germany.
    2. Chuhan, Punam & Claessens, Stijn & Mamingi, Nlandu, 1998. "Equity and bond flows to Latin America and Asia: the role of global and country factors," Journal of Development Economics, Elsevier, vol. 55(2), pages 439-463, April.
    3. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October.
    4. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    5. Kaminsky, Graciela & Lyons, Richard K. & Schmukler, Sergio L., 2004. "Managers, investors, and crises: mutual fund strategies in emerging markets," Journal of International Economics, Elsevier, vol. 64(1), pages 113-134, October.
    6. Ashoka Mody & Mark P. Taylor, 2013. "International capital crunches: the time-varying role of informational asymmetries," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2961-2973, July.
    7. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
    8. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.
    9. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
    10. Hans-Martin Krolzig, 2001. "General--to--Specific Reductions of Vector Autoregressive Processes," Computing in Economics and Finance 2001 164, Society for Computational Economics.
    11. Mr. Vivek B. Arora & Mr. Martin D. Cerisola, 2000. "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?," IMF Working Papers 2000/148, International Monetary Fund.
    12. Mr. Piti Disyatat & Mr. Gaston Gelos, 2001. "The Asset Allocation of Emerging Market Mutual Funds," IMF Working Papers 2001/111, International Monetary Fund.
    13. Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," The World Bank Economic Review, World Bank, vol. 11(3), pages 451-470, September.
    14. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    15. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    16. Mody, Ashoka & Taylor, Mark P & Kim, Jung Yeon, 2001. "Modelling Fundamentals for Forecasting Capital Flows to Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 201-216, July.
    17. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
    18. Fernandez-Arias, Eduardo & Montiel, Peter J, 1996. "The Surge in Capital Inflows to Developing Countries: An Analytical Overview," The World Bank Economic Review, World Bank, vol. 10(1), pages 51-77, January.
    19. Mr. Manmohan S. Kumar & Mr. Avinash Persaud, 2001. "Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence," IMF Working Papers 2001/134, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lizarazo, Sandra Valentina, 2013. "Default risk and risk averse international investors," Journal of International Economics, Elsevier, vol. 89(2), pages 317-330.
    2. Nicolas Melissas, 2009. "On Bid Disclosure in OCS Wildcat Auctions," Working Papers 0905, Centro de Investigacion Economica, ITAM.
    3. Sandra Lizarazo & Jose Maria Da-Rocha, 2009. "Money, Credit and Default," Working Papers 0908, Centro de Investigacion Economica, ITAM.
    4. Sofia Babilis & Valpy Fitzgerald, 2005. "Risk Appetite, Home Bias and the Unstable Demand for Emerging Market Assets," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(4), pages 459-476.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valpy FitzGerald & Derya Krolzig, 2004. "Modelling the demand for emerging market assets," Money Macro and Finance (MMF) Research Group Conference 2003 29, Money Macro and Finance Research Group.
    2. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
    3. Ashoka Mody & Mark P. Taylor, 2013. "International capital crunches: the time-varying role of informational asymmetries," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2961-2973, July.
    4. Valpy Fitzgerald, 2002. "The Instability of the Emerging Market Assets Demand Schedule," WIDER Working Paper Series DP2002-80, World Institute for Development Economic Research (UNU-WIDER).
    5. Tidiane Kinda, 2007. "Increasing Private Capital Flows to Developing Countries : The Role of Physical and Financial Infrastructure," Post-Print hal-00171934, HAL.
    6. Hardik A. Marfatia, 2016. "The Role of Push and Pull Factors in Driving Global Capital Flows," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 62(2), pages 117-146.
    7. Fiess, Norbert, 2003. "Capital flows, country risk, and contagion," Policy Research Working Paper Series 2943, The World Bank.
    8. Felices, Guillermo & Orskaug, Bjorn-Erik, 2008. "Estimating the determinants of capital flows to emerging market economies: a maximum likelihood disequilibrium approach," Bank of England working papers 354, Bank of England.
    9. Boero, Gianna & Mandalinci, Zeyyad & Taylor, Mark P., 2019. "Modelling portfolio capital flows in a global framework: Multilateral implications of capital controls," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 142-160.
    10. Steven B. Kamin, 2002. "Identifying the role of moral hazard in international financial markets," International Finance Discussion Papers 736, Board of Governors of the Federal Reserve System (U.S.).
    11. Valpy Fitzgerald, 2006. "International Risk Tolerance, Capital Market Failure and Capital Flows to Emerging Markets," WIDER Working Paper Series RP2006-35, World Institute for Development Economic Research (UNU-WIDER).
    12. Serge Jeanneau & Marian Micu, 2002. "International bank lending to emerging market countries: explaining the 1990s roller coaster," BIS Quarterly Review, Bank for International Settlements, March.
    13. Yuko Hashimoto & Konstantin M. Wacker, 2012. "The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 124, Courant Research Centre PEG.
    14. Edison, Hali J. & Warnock, Francis E., 2008. "Cross-border listings, capital controls, and equity flows to emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 1013-1027, October.
    15. Tomislav Globan, 2015. "Financial integration, push factors and volatility of capital flows: evidence from EU new member states," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 643-672, August.
    16. Tricia Mangal & Day-Yang Liu, 2020. "The impact of economic freedom on foreign portfolio investments: The case of the Caricom single market and economy," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(2), pages 213-222, March.
    17. Bonizzi, Bruno, 2017. "Institutional investors’ allocation to emerging markets: A panel approach to asset demand," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 47-64.
    18. Serge Jeanneau & Marian Micu, 2002. "Determinants of international bank lending to emerging market countries," BIS Working Papers 112, Bank for International Settlements.
    19. Stijn Claessens & Daniel Oks & Rossana Polastri, 2000. "Capital Flows to Central and Eastern Europe and the Former Soviet Union," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 299-339, National Bureau of Economic Research, Inc.
    20. Ali Askin Culha, 2006. "A Structural VAR Analysis of the Determinants of Capital Flows Into Turkey," Working Papers 0605, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

    More about this item

    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, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sbs:wpsefe:2003fe10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Maxine Collett (email available below). General contact details of provider: https://edirc.repec.org/data/frcoxuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.