The Portfolio Flows of International Investors, I

38 Pages Posted: 12 Jun 2000 Last revised: 1 Dec 2008

See all articles by Kenneth Froot

Kenneth Froot

National Bureau of Economic Research (NBER); Harvard Business School

Paul G.J. O'Connell

FDO Partners, LLC

Mark S. Seasholes

ASU WP Carey School of Business

Date Written: August 1998

Abstract

This paper explores the behavior of daily, international portfolio flows into and out of 46 countries from 1994 through 1998. Our data are from State Street Bank & Trust and encompass over 3 million trades by client institutions. We find a number of interesting facts. First, we detect regional factors within the flows. Second, the flows are strongly persistent -- the persistence decays only slowly over time. Third, flows are strongly influenced by past returns, so that investor trend-following is apparent. Fourth forecasting power for future emerging market returns, but not for developed country returns. Fifth, we find the sensitivity of local stock prices to foreign inflows to be positive and determine that transitory inflows impact future returns negatively. Finally, we examine and reject that the positive covariance of returns and inflows is associated with an information disadvantage on the part of international investors.

Suggested Citation

Froot, Kenneth and O'Connell, Paul G.J. and Seasholes, Mark S., The Portfolio Flows of International Investors, I (August 1998). NBER Working Paper No. w6687. Available at SSRN: https://ssrn.com/abstract=226362

Kenneth Froot (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Paul G.J. O'Connell

FDO Partners, LLC ( email )

5 Revere Street
Cambridge, MA 02138
United States
617-864-3364 (Phone)
617-864-5548 (Fax)

Mark S. Seasholes

ASU WP Carey School of Business ( email )

Dept of Finance, BAC 501
400 E. Lemon St.
Tempe, AZ 85287-3906
United States

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