Have Institutional Investors Destabilized Emerging Markets?

April 1, 1996

Preview Citation

Format: Chicago

Brian J. Aitken Have Institutional Investors Destabilized Emerging Markets?, (USA: International Monetary Fund, 1996) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 significantly expand 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.

Subject: Asset bubbles, Asset prices, Emerging and frontier financial markets, Financial crises, Financial markets, Prices, Securities markets, Stock markets

Keywords: Asia and Pacific, Asset bubbles, Asset prices, Emerging and frontier financial markets, Emerging market asset, Institutional investor, Investible total returns Index, Investor, Investor behavior, Investor sentiment, Long-sighted investor, Price, Rate of return, Securities markets, Stock markets, U.S. dollar, Variance ratio, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/034
Stock No:

WPIEA0341996
ISBN:

9781451978889
ISSN:

1018-5941

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