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Importance of Foreign Ownership and Staggered Adjustment of Capital Outflows

Author

Listed:
  • Ozgur Ozel
  • Mustafa Utku Ozmen
  • Erdal Yilmaz

Abstract

Global financial markets have experienced a liquidity glut since the beginning of the new millennium especially in the aftermath of the 2008-2009 global financial crisis. In this era, the flow of foreign funds to emerging markets have elevated, somewhat more to Turkey. This flow increased foreign investor holdings in emerging markets. This study puts forward the increased share of foreign investors as a potential stabilizer for local financial markets, because domestic investors� weak absorption capacity may create liquidity constraints acting as an obstacle for foreign outflows. In order to pin down the effect of foreign investor dominance, we present empirical evidence from a detailed stock-ownership data. The detailed micro level data not only helps us unveil the behavior of foreign investors, but also helps us to discuss macroeconomic implications of their micro level decisions. In addition, given that the foreigner�s recent share in Turkish equity market is considerably high both from an historical viewpoint and from a cross section comparison with other emerging markets, the conclusions we reach regarding the market stabilization effect of foreigner share are unique. Overall, in an emerging market with high foreign ownership and low domestic absorption capacity at play, capital outflows might be staggered, rather than sudden.

Suggested Citation

  • Ozgur Ozel & Mustafa Utku Ozmen & Erdal Yilmaz, 2015. "Importance of Foreign Ownership and Staggered Adjustment of Capital Outflows," Working Papers 1531, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1531
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Capital outflows; Staggered adjustment; Liquidity constraint; Absorption capacity; Foreigner effect;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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