Capital Flows and the Behavior of Emerging Market Equity Returns

77 Pages Posted: 14 Jul 2000 Last revised: 10 Oct 2010

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

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Date Written: July 1998

Abstract

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.

Suggested Citation

Bekaert, Geert and Harvey, Campbell R., Capital Flows and the Behavior of Emerging Market Equity Returns (July 1998). NBER Working Paper No. w6669. Available at SSRN: https://ssrn.com/abstract=226359

Geert Bekaert (Contact Author)

Columbia Business School - Finance and Economics ( email )

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Campbell R. Harvey

Duke University - Fuqua School of Business ( email )

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National Bureau of Economic Research (NBER)

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Duke Innovation & Entrepreneurship Initiative ( email )

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