Emerging Market Portfolio Flows: The Role of Benchmark-Driven Investors
IMF Working Papers, December 17, 2015
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Bibliographic details
- Authors: Serkan Arslanalp, Takahiro Tsuda
- Published: December 17, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513570655.001
Overview and research question
- Portfolio flows to emerging markets (EMs) tend to be correlated.
- The paper investigates whether the role global benchmarks play in allocating capital internationally—the so-called “benchmark effect”—helps explain this correlation.
Key findings
- Benchmark-driven investors play a large role in the EM local currency government bond market.
- These investors accounted for more than one third of total foreign holdings as of end-2014.
- The prominence of benchmark-driven investors declined somewhat after the May 2013 taper tantrum, but remained high.
- A high share of benchmark-driven investors may result in capital flows that are more sensitive to global shocks and less sensitive to country factors.
Policy and analytical implications
- Distinguishing investor types (benchmark-driven versus other investors) is important for understanding drivers of EM capital flows.
- The composition of investor bases in EM local currency government bond markets affects sensitivity of flows to different types of shocks.
- Monitoring the share of benchmark-driven investors can inform assessments of vulnerability to global shocks.
Publication and metadata
- Authors: Serkan Arslanalp, Takahiro Tsuda
- Date: December 17, 2015
- Series: Working Paper No. 2015/263
- Issue: 263
- Volume: 2015
- Pages: 25
- DOI: https://doi.org/10.5089/9781513570655.001
- ISBN: 9781513570655
- ISSN: 1018-5941
- Subjects: Bonds; Emerging and frontier financial markets; Financial institutions; Financial markets; Inflation-indexed bonds; Securities markets; Sovereign bonds
- Keywords: bond indices; Bonds; Citi emerging markets government bond Index; EM index; EM investor; Emerging and frontier financial markets; emerging market; emerging market market portfolio; Financial Crises, Global; Government Bond Index-Emerging market; index; Inflation-indexed bonds; International Finance; Investment Decisions; investment universe; investor; investor base; Portfolio Choice; Securities markets; Sovereign bonds; WP
Source: IMF Working Paper "Emerging Market Portfolio Flows: The Role of Benchmark-Driven Investors" by Serkan Arslanalp and Takahiro Tsuda (December 17, 2015), Working Paper No. 2015/263.