Capital Flows and the Behavior of Emerging Market Equity Returns
Fuqua School of Business Working Paper No. 9807
51 Pages Posted: 8 May 2000
Date Written: May 20, 1999
Foreign portfolio flows may reflect deep changes in the functioning of an emerging market economy and its capital markets. Using a database of monthly net U.S. equity flows, we investigate the relation of these flows to the behavior of equity returns, the structural characteristics of the capital markets, exchange rates, and the strength of the economy. We find that increases in equity flows are associated with a lower cost of capital, higher correlation with world market returns, lower asset concentration, lower inflation, larger market size relative to GDP, more trade and slightly higher per capita economic growth.
Keywords: Capital Markets, U.S. Equity Flows, Distribution of Equity Returns, Economic Growth
JEL Classification: F30, F15, G15. G12
Suggested Citation: Suggested Citation