A Comparative Analysis on International Portfolio Flows to Asian Stock Markets With a Nonlinear Perspective

A Comparative Analysis on International Portfolio Flows to Asian Stock Markets With a Nonlinear Perspective

Ayben Koy (Istanbul Commerce University, Turkey)
DOI: 10.4018/978-1-5225-6114-9.ch005
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Abstract

After the Asian financial crisis was solved by International Monetary Fund in late 1997, the recovery in Asian economies begun by 1999. Most of the countries affected by the crisis needed to change their exchange rate policies. This chapter brings insight on how the international portfolio flows to Asian stock markets are affected from the shocks on EUR/USD parity. The weekly observations between 01/01/2010 to 21/04/2017 belong to India, Indonesia, Philippine, South Korea, Thailand, Malaysia, and Vietnam. Use of Markov regime switching vector autoregressive models presents the relationship according to the different regimes of the markets in the study. The results indicate that (1) the international portfolio flows through Asian stock markets are governed by a long run, nonlinear relation; (2) the shocks on EUR/USD parity have positive effects on the countries' portfolio flows except Malaysia; and (3) the responses to the shocks vary according to the market regimes or according to the countries.
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Literature Review

There is a wide literature investigating the factors effecting capital flows tend towards EMs (Culha, 2006; Yıldız, 2012; Onyeisi et al, 2016). There are many factors effecting the capital flows, which are related to the properties of home country or the properties of the host country or both of them. These factors are also divided into push factors and pull factors. Factors such as tax legislation, trust in law and justice, political stability of the country where the investment is made are as important factors as the variety of financial instruments, transaction volume and market depth. One of the pull factors attracting capital flows is liberalization. An effective liberalization policy would increase international portfolio flows to EMs (Bekaert & Harvey, 2000; Bekaert, Harvey & Lumsdaine, 2002). However, the increases of international portfolio flows cause fragility. Mishra et al. (2014) have evidence that EMs, which had tightened restrictions on inflows, experienced minimal market reactions to The Federal Reserve System (FED) announcements in the period between 2013 to 2014.

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