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Determinants of Portfolio Flows into CIS Countries

  • Alina Kudina
  • Oleksandr Lozovyi
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    This paper employs a standard Tobin-Markowitz framework to analyse the determinants of capital flows into the CIS countries. Using data from 1996-2006, we find that the Russian financial crisis of 1998 has had a profound impact on capital flows into the CIS (both directly and indirectly). Firstly, it introduced a structural shift in the investors' behaviour by shifting the focus from the external factors to the internal ones, e.g. domestic interest and GDP growth rates. Secondly, it also drastically changed the impact of a number of explanatory variables on capital flows into the CIS. Political risk was found to be the second most important determinant of capital flows into the CIS. Additionally, we report some strong evidence of co-movement between portfolio flows into the CIS and CEEC, coupled with strong complementarity between global stock market activity and portfolio inflows into the CIS. Interestingly, external factors tend to be of a higher significance than internal factors for the largest members (Russia, Ukraine and Kazakhstan) of the CIS; whereas domestic variables tend to have a greater impact on the capital flows into the smaller CIS countries.

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    File URL: http://www.case-research.eu/upload/publikacja_plik/17667150_sa354.pdf
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    Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0354.

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    Length: 42 Pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:sec:cnstan:0354
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    1. Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-67, May/June.
    2. Kenneth A. Froot & Paul G.J. O'Connell & Mark S. Seasholes, 1998. "The Portfolio Flows of International Investors, I," NBER Working Papers 6687, National Bureau of Economic Research, Inc.
    3. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
    4. Kraay, Aart & Loayza, Norman & Serven, Luis & Ventura, Jaume, 2004. "Country Portfolios," Policy Research Working Paper Series 3320, The World Bank.
    5. 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.
    6. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
    7. Mark Carlson & Leonardo Hernandez, 2002. "Determinants and repercussions of the composition of capital inflows," International Finance Discussion Papers 717, Board of Governors of the Federal Reserve System (U.S.).
    8. Kreicher, Lawrence L, 1981. "International Portfolio Capital Flows and Real Rates of Interest," The Review of Economics and Statistics, MIT Press, vol. 63(1), pages 20-28, February.
    9. Fiess, Norbert, 2003. "Capital flows, country risk, and contagion," Policy Research Working Paper Series 2943, The World Bank.
    10. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank.
    11. Pietro Garibaldi & Nada Mora & Ratna Sahay & Jeromin Zettelmeyer, 2001. "What Moves Capital to Transition Economies?," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 6.
    12. Mark S. Carlson & Leonardo Hernández, 2002. "Determinants and Repercussions of the Composition of Capital Inflows," IMF Working Papers 02/86, International Monetary Fund.
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