Institutional Investors Allocation to Emerging Markets: a Panel Approach to Asset Demand

Bonizzi, Bruno (2015): Institutional Investors Allocation to Emerging Markets: a Panel Approach to Asset Demand.

Abstract

This paper presents empirical evidence on the increasing allocation of institutional investors to emerging markets economies. It seeks to understand which factors are driving this increase, and how this relates to portfolio flows to such economies. By making use of the Emerging Portfolio Fund Research database, it estimates asset demand equations for emerging markets equities and bonds by institutional investors from advanced countries. These are estimated using recent advances in the panel autoregressive distributed lags models literature. Two key results emerge: balance sheet conditions of institutional investors and foreign exchange reserves in emerging markets affect asset allocation; secondly, quarterly returns matter for long-run asset allocations and the portfolio adjustment process is quick. These findings suggest that portfolio flows by institutional investors could still be procylical despit their more long-term horizon, and that additional variables should be monitored to ensure financial stability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Capital flows, emerging markets, institutional investors, Panel ARDL
• Subjects: F - International Economics > F3 - International Finance > F30 - General; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

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