Are Daily Cross-border Equity Flows Pushed or Pulled?
John M. Griffin
University of Texas at Austin - Department of Finance
René M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
University of Melbourne - Department of Finance
EFA 2003 Annual Conference Paper No. 893
We investigate the conditions under which an equilibrium intertemporal model based on portfolio decisions of investors can explain the dynamics of high frequency equity flows. Our model shows that, when there are barriers to international investment and when the expectations of foreign investors are more extrapolative than those of domestic investors (either due to foreigners being less informed or to behavioural reasons), unexpectedly high worldwide or local stock returns lead to net euqity inflows in small countries. We investigate these predictions using daily data on net equity flows for nine emerging market countries and find that euqity flows are positively related to host country stock returns as well as market performance abroad. Both our theoretical model and out empirical analysis show that global stock return performance is an important factor in understanding equity flows.
Number of Pages in PDF File: 60
Date posted: July 21, 2003