Portfolio Capital Flows: A Simple Coincident Indicator for Emerging Markets

44 Pages Posted: 19 Jul 2014

See all articles by Julien Moussavi

Julien Moussavi

Amundi Asset Management; Paris-Dauphine University

Date Written: July 18, 2014

Abstract

The scarcity of up-to-date data is a meaningful constraint in the analysis of capital flows, especially for Emerging Markets (EMs). Indeed, the most commonly used source of cross-country data on capital flows is the Balance of Payments (BoP) statistics collected by the International Monetary Fund. Nevertheless, these data are available at low frequency and are usually published three to nine months later, notably for EMs. This delay is problematic for policy makers who need to calibrate appropriate policies in order to control the pernicious effects of volatile foreign capital flows, i.e. economic and financial imbalances resulting from surges and/or sudden stops. To address this issue, we propose a simple coincident proxy to capture the gross portfolio capital flows towards EMs. This indicator is a metric of the current state of these portfolio flows and uses data from Emerging Portfolio Fund Research (EPFR) Global which covers net bond and equity flows. In an error correction framework, we propose to better capture foreign investors’ sentiment. We find that the trend in EPFR data is a coincident indicator of BoP flows mainly in regional aggregates and large EMs. Finally, we build some Investor Sentiment indices that provide relevant information on EM asset returns.

Keywords: Emerging Markets, Balance of Payments, Portfolio Capital Flows, EPFR, Coincident Indicator, Investor Sentiment, Sudden Stop

JEL Classification: F21, F32, F37

Suggested Citation

Moussavi, Julien, Portfolio Capital Flows: A Simple Coincident Indicator for Emerging Markets (July 18, 2014). Available at SSRN: https://ssrn.com/abstract=2468148 or http://dx.doi.org/10.2139/ssrn.2468148

Julien Moussavi (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Paris-Dauphine University ( email )

223 Rue Saint-Honore
Paris, 75775
France

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