Nonresident Capital Flows and Volatility: Evidence from Malaysia's Local Currency Bond Market

20 Pages Posted: 13 Feb 2019

See all articles by David Grigorian

David Grigorian

International Monetary Fund (IMF)

Date Written: January 2019

Abstract

Malaysia's local currency debt market is one of the most liquid public debt markets in theworld. In recent years, the growing share of nonresident holders of debt has been a source ofconcern for policymakers as a reason behind exchange rate volatility. The paper provides anoverview of the recent developments in the conventional debt market. It builds an empiricaltwo-stage model to estimate the main drivers of debt capital flows to Malaysia. Finally, it usesa GARCH model to test the hypothesis that nonresident flows are behind the observedexchange rate volatility. The results suggest that the public debt market in Malaysia respondsadequately to both pull and push factors and find no firm evidence that nonresident flows causevolatility in the onshore foreign exchange market.

Keywords: Malaysia, Asia and Pacific, Debt markets, International financial markets, nonresident investors, volatility, Asset Pricing

JEL Classification: G12, G15

Suggested Citation

Grigorian, David A., Nonresident Capital Flows and Volatility: Evidence from Malaysia's Local Currency Bond Market (January 2019). IMF Working Paper No. 19/23. Available at SSRN: https://ssrn.com/abstract=3333747

David A. Grigorian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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