IDEAS home Printed from https://ideas.repec.org/a/mes/emfitr/v53y2017i10p2215-2232.html
   My bibliography  Save this article

Do Capital Flows Matter to Stock and House Prices? Evidence from China

Author

Listed:
  • Ling Feng
  • Ching-Yi Lin
  • Chun Wang

Abstract

This article analyzes the impacts of foreign direct investment (FDI) and short-term capital flows, otherwise known as hot money, on stock and house prices in China. Empirical results, estimated using the local projections approach, reveal that a positive hot money net inflow shock significantly increases stock and house prices and the impacts persist for up to 1–2 months, while a positive FDI net inflow shock contributes significantly to lagged house price appreciation but has no effect on stock prices. This study also identifies negative pass-through effects of FDI net inflows on hot money net inflows and positive pass-through effects of stock prices on house prices.

Suggested Citation

  • Ling Feng & Ching-Yi Lin & Chun Wang, 2017. "Do Capital Flows Matter to Stock and House Prices? Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(10), pages 2215-2232, October.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:10:p:2215-2232
    DOI: 10.1080/1540496X.2016.1180283
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/1540496X.2016.1180283
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/1540496X.2016.1180283?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Razin, Assaf & Sadka, Efraim & Yuen, Chi-Wa, 1998. "A pecking order of capital inflows and international tax principles," Journal of International Economics, Elsevier, vol. 44(1), pages 45-68, February.
    2. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 421-480, National Bureau of Economic Research, Inc.
    3. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    4. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 9-62.
    5. Robert E. Lipsey & Robert C. Feenstra & Carl H. Hahn & George N. Hatsopoulos, 1999. "The Role of Foreign Direct Investment in International Capital Flows," NBER Chapters, in: International Capital Flows, pages 307-362, National Bureau of Economic Research, Inc.
    6. Rebecca M. Neumann, 2003. "International capital flows under asymmetric information and costly monitoring: implications of debt and equity financing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(3), pages 674-700, August.
    7. Faria, Andr & Mauro, Paolo, 2009. "Institutions and the external capital structure of countries," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 367-391, April.
    8. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    9. Chi-Wa Yuen & Assaf Razin & Efraim Sadka, 1996. "A Pecking Order Theory of Capital Inflows and International Tax Principles," IMF Working Papers 1996/026, International Monetary Fund.
    10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    11. Linda L. Tesar & Rene M. Stulz & Stephen Friedman & George N. Hatsopoulos, 1999. "The Role of Equity Markets in International Capital Flows," NBER Chapters, in: International Capital Flows, pages 235-306, National Bureau of Economic Research, Inc.
    12. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    13. Richards, Anthony, 2005. "Big Fish in Small Ponds: The Trading Behavior and Price Impact of Foreign Investors in Asian Emerging Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(1), pages 1-27, March.
    14. Atsuyuki Naka & David Tufte, 1997. "Examining impulse response functions in cointegrated systems," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1593-1603.
    15. Robert E. Lipsey, 2001. "Foreign Direct Investors in Three Financial Crises," NBER Working Papers 8084, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hernández Vega Marco A., 2019. "How Relevant are Capital Flows for House Prices in Emerging Economies?," Working Papers 2019-19, Banco de México.
    2. Shahrier, Nur Ain & Anwer, Zaheer & Hassan, M. Kabir, 2023. "Do different streams of capital flows affect asset prices differently?," Global Finance Journal, Elsevier, vol. 57(C).
    3. Zhang, Yihao & Chen, Fang & Huang, Jian & Shenoy, Catherine, 2019. "Hot money flows and production uncertainty: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Md. Qamruzzaman & Ananda Bardhan & Summatun Nasya, 2020. "Nexus between Remittance, Nonperforming Loan, Money Supply, and Financial Volatility: An Application of ARDL," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 8(1), pages 11-29.
    5. Boubekeur Baba & Guven Sevil, 2020. "The behavior of stock market prices throughout the episodes of capital inflows," Papers 2008.13472, arXiv.org.
    6. Yang Zhou, 2022. "The Effects of Capital Controls on Housing Prices," Discussion Paper Series DP2022-29, Research Institute for Economics & Business Administration, Kobe University.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ng, Joe Cho Yiu & Chan, Tommy Chao Hung & Tsang, Kwok Ping & Leung, Charles Ka Yui, 2022. "Greenfield foreign direct investment: Social learning drives persistence," Journal of International Money and Finance, Elsevier, vol. 126(C).
    2. Daude, Christian & Fratzscher, Marcel, 2008. "The pecking order of cross-border investment," Journal of International Economics, Elsevier, vol. 74(1), pages 94-119, January.
    3. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    4. Mr. Philip R. Lane & Mr. Gian M Milesi-Ferretti, 2000. "External Capital Structure: Theory and Evidence," IMF Working Papers 2000/152, International Monetary Fund.
    5. Razin, Assaf & Goldstein, Itay, 2003. "An Information-Based Trade-off Between Foreign Direct Investment and Foreign Portfolio Investment: Volatility, Transparency and," CEPR Discussion Papers 3747, C.E.P.R. Discussion Papers.
    6. Faria, Andr & Mauro, Paolo, 2009. "Institutions and the external capital structure of countries," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 367-391, April.
    7. Mohammad Reza Farzanegan & Sajjad Faraji Dizaji, 2014. "Political Institutions and Government Spending Behavior in Iran," MAGKS Papers on Economics 201403, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    8. Sajjad F. Dizaji & Mohammad Reza Farzanegan & Alireza Naghavi, 2016. "Political institutions and government spending behavior: theory and evidence from Iran," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 522-549, June.
    9. Mina, Wasseem, 2012. "Beyond FDI: The Influence of Bilateral Investment Treaties on Debt," MPRA Paper 51920, University Library of Munich, Germany.
    10. Akhtaruzzaman, M. & Berg, Nathan & Hajzler, Christopher, 2017. "Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?," European Journal of Political Economy, Elsevier, vol. 49(C), pages 84-107.
    11. Fratzscher, Marcel & Imbs, Jean, 2009. "Risk sharing, finance, and institutions in international portfolios," Journal of Financial Economics, Elsevier, vol. 94(3), pages 428-447, December.
    12. Igan, Deniz & Lauwers, Alexandre & Puy, Damien, 2022. "Capital Flows and Institutions," CEPR Discussion Papers 17527, C.E.P.R. Discussion Papers.
    13. Itay Goldstein & Assaf Razin, 2005. "Foreign Direct Investment vs. Foreiegn Portfolio Investment," NBER Working Papers 11047, National Bureau of Economic Research, Inc.
    14. Shahriyar Aliyev & Evžen Kočenda, 2023. "ECB monetary policy and commodity prices," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 274-304, February.
    15. Farzanegan, Mohammad Reza & Hassan, Mai & Badreldin, Ahmed Mohamed, 2020. "Economic liberalization in Egypt: A way to reduce the shadow economy?," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 307-327.
    16. Maite Alguacil & Ana Cuadros & Vicente Orts, 2004. "Does saving really matter for growth? Mexico (1970-2000)," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(2), pages 281-290.
    17. Mina, Wasseem, 2015. "Political risk guarantees and capital flows: The role of bilateral investment treaties," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-38.
    18. Goldstein, Itay & Razin, Assaf, 2006. "An information-based trade off between foreign direct investment and foreign portfolio investment," Journal of International Economics, Elsevier, vol. 70(1), pages 271-295, September.
    19. Roseline Nyakerario Misati & Esman Morekwa Nyamongo & Isaac Mwangi, 2013. "Commodity price shocks and inflation in a net oil-importing economy," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 37(2), pages 125-148, June.
    20. Ghosh, Atish R. & Ostry, Jonathan D. & Qureshi, Mahvash S., 2018. "Taming the Tide of Capital Flows: A Policy Guide," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262037165, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:emfitr:v:53:y:2017:i:10:p:2215-2232. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MREE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.