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Hot Money in disaggregated capital flows

Yan, C.

Authors

C. Yan



Abstract

We explore the possible existence and behavior of hot money in six categories of disaggregated bilateral capital flows (equity inflows, equity outflows, bond inflows, bond outflows, banking credit inflows, and banking credit outflows) for 12 emerging markets vis-à-vis the US from 1995 to 2012 and provides several new findings. First, we identify the existence of hot money in all six categories above and conclude that both gross inflows and gross outflows can be the sources of hot money. Second, hot money in equity inflows (outflows) engages in positive (negative) feedback trading regarding local stock market returns. Third, some categories of hot money have a temporary influence on local stock market returns while the others have a permanent influence, supporting the explanations of both price pressures and information advantage. Finally, local stock market returns in half of our sample countries, which have tightened capital controls during the late 2000s global financial crisis (GFC), are more affected by hot money than in the other half. Our findings confirm several popular conjectures of hot money, and endorse the use of capital controls to limit financial vulnerability in the run-up to and during the GFC.

Citation

Yan, C. (2018). Hot Money in disaggregated capital flows. European Journal of Finance, 29(2), 242-261. https://doi.org/10.1080/1351847x.2017.1411821

Journal Article Type Article
Acceptance Date Nov 27, 2017
Online Publication Date Dec 13, 2017
Publication Date Apr 3, 2018
Deposit Date Nov 27, 2017
Publicly Available Date Mar 29, 2024
Journal European Journal of Finance
Print ISSN 1351-847X
Electronic ISSN 1466-4364
Publisher Taylor and Francis Group
Peer Reviewed Peer Reviewed
Volume 29
Issue 2
Pages 242-261
DOI https://doi.org/10.1080/1351847x.2017.1411821
Public URL https://durham-repository.worktribe.com/output/1343268