The portfolio flows of international investors

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

Research output: Contribution to journalArticle

369 Citations (Scopus)

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 2001
Externally publishedYes

Fingerprint

Investors
Portfolio flows
Equity returns
Factors
Positive feedback trading
Stock prices
Emerging markets
Persistence

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

The portfolio flows of international investors. / Froot, Kenneth A.; O'Connell, Paul G J; Seasholes, Mark.

In: Journal of Financial Economics, Vol. 59, No. 2, 02.2001, p. 151-193.

Research output: Contribution to journalArticle

Froot, Kenneth A. ; O'Connell, Paul G J ; Seasholes, Mark. / The portfolio flows of international investors. In: Journal of Financial Economics. 2001 ; Vol. 59, No. 2. pp. 151-193.
@article{09932cd5a2584a13b4a07fd1ab520c16,
title = "The portfolio flows of international investors",
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.",
keywords = "F21, G11, G15, International investment, Investor behavior, Portfolio flows, Portfolio investment",
author = "Froot, {Kenneth A.} and O'Connell, {Paul G J} and Mark Seasholes",
year = "2001",
month = "2",
doi = "10.1016/S0304-405X(00)00084-2",
language = "English (US)",
volume = "59",
pages = "151--193",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "2",

}

TY - JOUR

T1 - The portfolio flows of international investors

AU - Froot, Kenneth A.

AU - O'Connell, Paul G J

AU - Seasholes, Mark

PY - 2001/2

Y1 - 2001/2

N2 - 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.

AB - 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.

KW - F21

KW - G11

KW - G15

KW - International investment

KW - Investor behavior

KW - Portfolio flows

KW - Portfolio investment

UR - http://www.scopus.com/inward/record.url?scp=0000292460&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0000292460&partnerID=8YFLogxK

U2 - 10.1016/S0304-405X(00)00084-2

DO - 10.1016/S0304-405X(00)00084-2

M3 - Article

VL - 59

SP - 151

EP - 193

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

IS - 2

ER -