Does Hot Money in Equity Flows Affect Emerging Stock Markets?

16 Pages Posted: 2 Feb 2018

See all articles by Cheng Yan

Cheng Yan

Durham University - Department of Economics and Finance

Date Written: August 23, 2017

Abstract

This research study investigates the influence of hot money in equity flows from the United States to twelve emerging-market (EM) countries on the local stock markets during January 1993 to December 2013, including both crisis and non-crisis periods. The study identifies de facto hot money as the temporary component of equity flows. Vector autoregressive models were conducted using monthly data on EMs with the Granger causality test and impulse response analysis. The study found that hot money in equity flows from the United States to EMs does have a significant impact on the local stocks, but the local stock market has little effect on hot money. The findings suggest a new factor regarding equity predictability and profitability that both investment advisors and consultants as well as policymakers may take into account.

Keywords: hot money, equity flows, emerging stock markets

JEL Classification: E44, F20, F34, G1

Suggested Citation

Yan, Cheng, Does Hot Money in Equity Flows Affect Emerging Stock Markets? (August 23, 2017). Journal of Investment Consulting, Vol. 18, no. 1, 2017, pp. 41-53. Available at SSRN: https://ssrn.com/abstract=3024896

Cheng Yan (Contact Author)

Durham University - Department of Economics and Finance ( email )

Durham, DH1 3HY
United Kingdom

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