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The Dynamics of Emerging Market Equity Flows


Geert Bekaert


Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Campbell R. Harvey


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Robin L. Lumsdaine


American University - Department of Finance and Real Estate; National Bureau of Economic Research (NBER)

July 1999

NBER Working Paper No. w7219

Abstract:     
We study the interrelationship between capital flows, returns, dividend yields and world interest rates in 20 emerging markets. We estimate a vector autoregressionn with these variables to measure the degree to which lower interest rates contribute to increased capital flows and shocks in flows affect the cost of capital among other dynamic relations. We precede the VAR analysis by a detailed examination of endogenous break points in capital flows and the other variables. These structural breaks are traced to the liberalization of emerging equity markets. Our evidence of structural breaks call into question past research which estimates VAR models over the full sample. After a liberalization, we find that equity flows increase by 1.4% of market capitalization. We also show that shocks in equity flows initially increase returns which is consistent with a price pressure hypothesis. While the effect is diminished over time, there also appears to be a permenant impact. This is consistent with our finding that our proxy for the cost of capital, dividend yields, decreases. Finally, our analysis of the transitition dynamics from pre-liberalization to post-liberalization suggests that when capital leaves, it leaves faster than it came in. These results may help us understand the dynamics of the recent crises in Latin America and East Asia.

Number of Pages in PDF File: 62

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Date posted: June 26, 2000  

Suggested Citation

Bekaert, Geert and Harvey, Campbell R. and Lumsdaine, Robin L., The Dynamics of Emerging Market Equity Flows (July 1999). NBER Working Paper No. w7219. Available at SSRN: http://ssrn.com/abstract=227570

Contact Information

Geert Bekaert (Contact Author)
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Campbell R. Harvey
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robin L. Lumsdaine
American University - Department of Finance and Real Estate ( email )
Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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