HAVE INSTITUTIONAL INVESTORS DESTABILIZED EMERGING MARKETS?

Brian Aitken

50 citations0/0 files storedContemporary Economic Policy

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Financial Markets and Investment Strategies Global Financial Crisis and Policies Financial Risk and Volatility Modeling

Abstract

In the past few years, there has been a large increase in portfolio capital flows into emerging markets, mostly fueled by mutual funds and other institutional investors. Based on a simple variance ratio test, this paper finds that emerging stock markets as a group experienced a sharp increase in autocorrelation in total returns at a time when institutional investors began to expand significantly their holdings in these markets. These results are consistent with the view that institutional investor sentiment toward emerging markets as an asset class can at times play a critical role in determining asset prices, with shifts in sentiment resulting in periods of bubble‐like booms and busts and asset price overshooting.

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References

1991Efficient Capital Markets: II 1988Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test 1990Positive Feedback Investment Strategies and Destabilizing Rational Speculation 1988How Big Is the Random Walk in GNP?1995Return Behavior in Emerging Stock Markets 1989Price Volatility, International Market Links, and Their Implications for Regulatory Policies 1995Dutch Tulips and Emerging Markets 1989Price volatility, international market links, and their implications for regulatory policies

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2003Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis 2000How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?1999Emerging market transaction costs: Evidence from Indonesia 2001Response asymmetries in the Latin American equity markets 2007Foreigners’ perceptions of U.S. markets: Do foreigners exhibit herding tendencies?2014

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