How international financial flows affect stock markets?

ABSTRACT

Relying on the IMF Coordinated Portfolio Investment Survey, which reports countries’ bilateral investments in financial assets at end-2001 to end-2015, this article shows that a country’s stock market growth is not only spatially correlated with those of nearby countries, but also positively associated with the magnitude of connectedness of the country’s international investments in debt within a dynamic financial investment flow network. The positive relation arises because debts have become an increasingly important source of capital for developing countries.

KEYWORDS:

• CPIS
• financial network
• international capital flows
• spatial panel regression

JEL CLASSIFICATION:

• C13
• G11

Acknowledgements

We thank the seminar participants at Tohoku University and 2017 Asian Meeting of the Econometric Society for their suggestions. We are grateful to the Editor, David Peel, and an anonymous referee for their valuable comments. Financial supports from 2016 Nomura Foundation (AE-06) and JSPS KAKENHI 17K13759 JP are also grateful.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We downloaded the international research returns data formed by country portfolios on E/P and B/M ratios from Kenneth R. French’s data library.

² The macroeconomic variables are mostly from the OECD databank (https://stats.oecd.org), but the HPIs for Singapore and Hong Kong are obtained from the Singapore statistics centre (https://data.gov.sg/dataset/private-residential-property-price-index-by-type-of-property?resource_id=9e4a9c73-0e9d-44a5-8d24-dc39feaa5730) and the Hong Kong University (http://hkureis.versitech.hku.hk/), respectively. All the macroeconomic variables are for the base period of 2010.

Additional information

Funding

Financial supports from 2016 Nomura Foundation [AE-06] and JSPS KAKENHI [17K13759 JP] are grateful.