Foreign Investors in Emerging Equity Markets: Currency Effect Perspective

Yan, C.

Foreign Investors in Emerging Equity Markets: Currency Effect Perspective

Yan, C.

Authors

C. Yan

Abstract

This paper takes a perspective from foreign exchange (FX) to investigate the daily trading behavior and price impact of foreign investors in six Asian emerging equity markets over the past two decades. It exploits the unsolved interrelationship between capital flows and equity returns, and it also explores a possible role of FX and provides several new findings. First, flows chase domestic equity returns but not currency returns. Second, flows have an impact on FX returns as well as equity returns, and both impacts are more than temporary. When currency effects are washed out, the equity effects either become insignificant or are substantially reduced in magnitude. Finally, both past returns and volatility in the global equity/FX market affect flows. Our findings challenge the literature, which neglects FX on this topic, and provide new insights on the dynamics of flows, FX, and equity market.

Citation

Yan, C. (2015). Foreign Investors in Emerging Equity Markets: Currency Effect Perspective. The journal of investment consulting, 16(1), 43-72

Journal Article Type	Article
Publication Date	Jan 1, 2015
Deposit Date	Oct 22, 2015
Publicly Available Date	Oct 29, 2015
Journal	The journal of investment consulting.
Print ISSN	1524-6035
Publisher	Investment Management Consultants Association (IMCA)
Peer Reviewed	Peer Reviewed
Volume	16
Issue	1
Pages	43-72
Public URL	https://durham-repository.worktribe.com/output/1419625
Publisher URL	https://www.imca.org/publication-issues/latest-issue