How Do International Fund Flows Move the Stock Markets in Asia?
How Do International Fund Flows Move the Stock Markets in Asia?

Summary/Abstract: This study investigates the impact of international fund flows on four Pacific Rim stock markets in Asian countries including Indonesia, South Korea, Taiwan, and Thailand since 2007 when the Federal Reserve and other major central banks have issued the quantitative easing (QE) or the similar policies which have created huge and unexpected fund flows to the global economy. These fund flows have had a significant effect on the global equity market, especially the emerging markets in Asia. Multiple regressions are applied to examine the effect of both foreign and domestic investors’ fund inflows represented by their net buy on the stock market returns, volume, and volatility. The empirical results show that foreign fund inflows are positively correlated with market returns while the domestic fund inflows are not. Foreign fund inflows have significantly positive effect on market volume, while domestic fund inflows have significantly negative effect. In addition, foreign fund inflows significantly lessen market volatility while domestic fund inflows increase volatility in the stock market. The results can potentially be explained by the asymmetric information content of foreign investors’ trading.

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