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Dynamic relationships among equity flows, equity returns and dividends: Behavior of U.S. investors in China and India

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  • French, Joseph J.
  • Naka, Atsuyuki

Abstract

This research examines the linkages among U.S. equity flows to China and India, their equity returns, and their fundamental variables. We find that positive shocks to U.S. equity flows to China and India elicit an insignificant response to returns. This finding provides evidence that U.S. institutional investors are not a destabilizing influence in these markets. However, positive innovations to dividends in both China and India have a negative impact on returns. We conjecture that the high potential growth rates in these markets make it preferable for companies to retain earnings rather than pay dividends. In India, shocks to dividend yields have a strong negative influence on U.S. equity flows. Our results validate the need to take into account fundamental variables when examining U.S. investor behavior in emerging equity markets.

Suggested Citation

  • French, Joseph J. & Naka, Atsuyuki, 2013. "Dynamic relationships among equity flows, equity returns and dividends: Behavior of U.S. investors in China and India," Global Finance Journal, Elsevier, vol. 24(1), pages 13-29.
    • Handle: RePEc:eee:glofin:v:24:y:2013:i:1:p:13-29
    DOI: 10.1016/j.gfj.2013.03.005
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    Cited by:

    1. French, Joseph J. & Li, Wei-Xuan, 2017. "Sentiment, foreign equity flows, and returns: Evidence from Thailand’s stock markets," Research in International Business and Finance, Elsevier, vol. 42(C), pages 816-831.
    2. Ros Zam Zam Sapian & Jing Quan Lee, 2018. "Return, Volatility and Equity Fund Flows Linkages: Evidence from an Emerging Market," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 8(7), pages 172-186, July.
    3. Ros Zam Zam Sapian & Noor Azryani Auzairy, 2015. "Foreign Equity Flows and Market Return Linkages: Evidence of Malaysian Stock Market," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 1-14, October.

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    More about this item

    Keywords

    Equity flows; Excess return; Dividends; Investor behavior; SVAR;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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