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Revisiting portfolio flows – exchange rate nexus in emerging markets: a Markov Regime Switching MGARCH approach

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  • Berna Aydoğan
  • Gülin Vardar
  • Tezer Yelkenci

Abstract

This paper focuses on the role of exchange rate uncertainty on the net portfolio flows using a bilateral monthly data for the US vis-à-vis six emerging countries (E-6) (India, Brazil, Mexico, Russia, Indonesia and Turkey) over the period 1993:01–2017:12. Employing Markov Regime Switching CCC GARCH model, the results suggest that exchange rate volatility affects both net bond and net equity flows for whole sample. The correlation evidence between net portfolio flows and exchange rate uncertainty is stronger in the cases of Brazil and Mexico, in terms of supporting these countries’ bond and equity home bias in high volatility regime.

Suggested Citation

  • Berna Aydoğan & Gülin Vardar & Tezer Yelkenci, 2021. "Revisiting portfolio flows – exchange rate nexus in emerging markets: a Markov Regime Switching MGARCH approach," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 14(3), pages 219-240, September.
    • Handle: RePEc:taf:macfem:v:14:y:2021:i:3:p:219-240
    DOI: 10.1080/17520843.2020.1814376
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