Sensitivity of Emerging Market Bond Fund Flows to US Monetary Stance and Global Risk Aversion

Hong Kong Monetary Authority, Research Memorandum 01/2018

19 Pages Posted: 17 May 2019

See all articles by David Leung

David Leung

Hong Kong Monetary Authority

Jiayue Zhang

Hong Kong Monetary Authority

Alfred Wong

Hong Kong Monetary Authority

Date Written: March 6, 2018

Abstract

This note ranks the sensitivities of emerging market economies’ (EMEs’) bond fund flows to changes in the US monetary stance and global risk aversion. Based on the sensitivities, we draw heat maps to indicate the economies that are more likely to suffer large outflows. We find that bond fund flows have become more sensitive to changes in the US monetary stance and global risk aversion since the global financial crisis, possibly attributable to an increasing participation of global investors in the EME bond markets through mutual funds. Some emerging Asian economies, such as Hong Kong, Korea and Singapore, are found to be more resilient in times of market stress and demonstrate lower outflow persistence, which may reflect that global investors are able to differentiate among emerging economies based on their fundamentals. Our results also show that persistence is relatively high for bond fund inflows to emerging Asian economies, suggesting that policymakers should be vigilant about the risk of large inflows.

Keywords: Fund Flow, Emerging Markets, Bond Market, Risk Aversion

JEL Classification: F21, G15, G28

Suggested Citation

Leung, David and Zhang, Jiayue and Wong, Alfred, Sensitivity of Emerging Market Bond Fund Flows to US Monetary Stance and Global Risk Aversion (March 6, 2018). Hong Kong Monetary Authority, Research Memorandum 01/2018 . Available at SSRN: https://ssrn.com/abstract=3374079 or http://dx.doi.org/10.2139/ssrn.3374079

David Leung

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Jiayue Zhang (Contact Author)

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Alfred Wong

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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