The portfolio flows of international investors

Kenneth A. Froot, Paul G.J. O'Connell, Mark S. Seasholes

Research output: Contribution to journalArticle

379 Scopus citations

Abstract

This paper explores daily international portfolio flows into and out of 44 countries from 1994 through 1998. We find several facts concerning the behavior of flows and their relationship with equity returns. First, we detect regional flow factors that have increased in importance through time. Second, the flows appear to be stationary, but far more persistent than returns. Third, flows are strongly influenced by past returns, a finding consistent with positive feedback trading by international investors. Fourth, inflows have positive forecasting power for future equity returns, and this power is statistically significant in emerging markets. Fifth, the sensitivity of local stock prices to foreign inflows is positive and large. Sixth, prices seem consistent with flow persistence, in that transitory inflows impact future returns negatively.

Original languageEnglish (US)
Pages (from-to)151-193
Number of pages43
JournalJournal of Financial Economics
Volume59
Issue number2
DOIs
StatePublished - Feb 1 2001
Externally publishedYes

    Fingerprint

Keywords

  • F21
  • G11
  • G15
  • International investment
  • Investor behavior
  • Portfolio flows
  • Portfolio investment

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this