Push Factors and Capital Flows to Emerging Markets: Why Knowing Your Lender Matters More Than Fundamentals

By Eugenio M Cerutti, Stijn Claessens, Damien Puy

June 22, 2015

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Eugenio M Cerutti, Stijn Claessens, and Damien Puy. Push Factors and Capital Flows to Emerging Markets: Why Knowing Your Lender Matters More Than Fundamentals, (USA: International Monetary Fund, 2015) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyzes the behavior of gross capital inflows across 34 emerging markets (EMs). We first confirm that aggregate inflows to EMs co-move considerably. We then report three findings: (i) the aggregate co-movement conceals significant heterogeneity across asset types as only bank-related and portfolio bond and equity inflows do co-move; (ii) while global push factors in advanced economies mostly explain the common dynamics, their relative importance varies by type of flow; and (iii) the sensitivity to common dynamics varies significantly across borrower countries, with market structure characteristics (especially the composition of the foreign investor base and the level of liquidity) rather than borrower country’s institutional fundamentals strongly affecting sensitivities. Countries relying more on international funds and global banks are found to be more sensitive to push factors. Our findings suggest that EMs need to closely monitor their lenders and investors to assess their inflow exposures to global push factors.

Subject: Balance of payments, Banking, Bonds, Capital flows, Capital inflows, Financial institutions, Financial markets, Stock markets, Stocks

Keywords: Africa, Asia and Pacific, Bond flow, Bonds, Capital flows, Capital inflows, Emerging markets, Equity, Equity flow, Equity inflow, Europe, Global, Global banks, Inflows to EMs, Investor base, Market characteristic, MSCI emerging market index, Mutual funds, Portfolio equity, Push factors, Stock markets, Stocks, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/127
Stock No:

WPIEA2015127
ISBN:

9781513526638
ISSN:

1018-5941

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