Emerging Market Portfolio Flows: The Role of Benchmark-Driven Investors

December 17, 2015

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Serkan Arslanalp, and Takahiro Tsuda. Emerging Market Portfolio Flows: The Role of Benchmark-Driven Investors, (USA: International Monetary Fund, 2015) accessed November 21, 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

Portfolio flows to emerging markets (EMs) tend to be correlated. A possible explanation is the role global benchmarks play in allocating capital internationally, the so-called “benchmark effect.” This paper finds that benchmark-driven investors indeed play a large role in a key segment of the market—the EM local currency government bond market—, accounting for more than one third of total foreign holdings as of end-2014. We find that the prominence of these investors declined somewhat after the May 2013 taper tantrum, but remain high. This distinction is important in understanding the drivers of EM capital flows and their sensitivity to different types of shocks. In particular, 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.

Subject: 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

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/263
Stock No:

WPIEA2015263
ISBN:

9781513570655
ISSN:

1018-5941

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