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Cross-Border Capital Flows and Return Dynamics in Emerging Stock Markets: Relative Roles of Equity and Debt Flows

Author

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  • Deven Bathia

    (Queen Mary University of London, School of Business and Management, Mile End Road, London, E1 4NS, United Kingdom)

  • Christos Bouras

    (Department of Banking and Financial Management, University of Piraeus, 80, M. Karaoli & A. Dimitriou St., 18534 Piraeus, Greece)

  • Riza Demirer

    (Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026- 1102, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

Abstract

This paper examines the wealth and risk effects of cross-border capital flows on emerging stock markets by distinguishing between equity and debt flows and using a panel GARCH approach. We find that both equity and debt flows possess incremental information over emerging stock market returns and volatility that is not captured by aggregate capital market risk factors. While the explanatory power of debt flows is relatively stronger and more robust, even after controlling for world market return, volatility as well as leverage and asymmetric effects, we find that equity flows assume significant explanatory power, particularly during the post-global financial crisis period. Further analysis also shows that changes in debt flows can serve as a significant determinant of crash risks in emerging stock markets. Finally, our findings indicate a robust effect of debt flows on idiosyncratic risks at the country level with significant implications for asset valuations in emerging stock markets.

Suggested Citation

  • Deven Bathia & Christos Bouras & Riza Demirer & Rangan Gupta, 2019. "Cross-Border Capital Flows and Return Dynamics in Emerging Stock Markets: Relative Roles of Equity and Debt Flows," Working Papers 201937, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201937
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    4. Bathia, Deven & Demirer, Riza & Ferrer, Román & Raheem, Ibrahim D., 2023. "Cross-border capital flows and information spillovers across the equity and currency markets in emerging economies," Journal of International Money and Finance, Elsevier, vol. 139(C).
    5. Hossain, Md. Jamal & Akter, Sadia & Ismail, Mohd Tahir, 2021. "Performance Analysis of GARCH Family Models in Three Time-frames," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 15-28.

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    Keywords

    Cross-border portfolio flows; emerging stock markets; panel GARCH;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F00 - International Economics - - General - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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