Global Volatility and Firm-Level Capital Flows

67 Pages Posted: 13 Apr 2022 Last revised: 14 Apr 2025

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jaromir Nosal

Boston College

Tianyu Wang

Tsinghua University, School of Economics and Management

Date Written: December 05, 2024

Abstract

We study the impact of global volatility on the equity portfolio flows of institutional investors worldwide. Aggregate equity allocations of institutional investors decrease during periods of high volatility, both in developed and, even more strongly, in emerging markets. Our granular portfolio-level data allows us to uncover disaggregated investor responses that are an order of magnitude larger than aggregate estimates, and are dominated by discretionary (investor-driven) component of flows. We further show that periods of high volatility are associated with portfolio rebalancing by institutional investors from small-cap to large-cap stocks. Finally, institutional flows have significant impact on future firm stability, measured by their volatility and liquidity. Our findings are consistent with the economic mechanism in which investors with heterogeneous information capacity are learning about assets with different information rents.

Keywords: global financial flows, global volatility, institutional flows, information choice, emerging markets

JEL Classification: F32, G11, G15, G23

Suggested Citation

Kacperczyk, Marcin T. and Nosal, Jaromir and Wang, Tianyu, Global Volatility and Firm-Level Capital Flows (December 05, 2024). Available at SSRN: https://ssrn.com/abstract=4044124 or http://dx.doi.org/10.2139/ssrn.4044124

Marcin T. Kacperczyk (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jaromir Nosal

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Tianyu Wang

Tsinghua University, School of Economics and Management ( email )

Beijing, 100084
China

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