The Impact of International Portfolio Flows on Exchange Rate Volatility in Emerging Markets in Asia
DOI:
https://doi.org/10.37385/ijedr.v5i4.4372Keywords:
International Portfolio Flows, Stock, Bonds, Exchanged Rate VolatilityAbstract
This research explores how inflows of stock and bond portfolios impact the level of volatility in exchange rates, using monthly data from the United States vis a vis seven emerging Asia countries (China Mainland, China Taiwan, The Philippines, India, Indonesia, Malaysia, and Thailand) between 2010 and 2022. The study uses statistical models such as Ordinary Least Square (OLS), Generalized Autoregressive Conditional Heteroscedasticity (GARCH), and Threshold Generalized Autoregressive Conditional Heteroscedasticity (TGARCH). The findings indicate that net stock and net bond flows have a significant impact on exchange rates volatility, and net stock flows have a more significant impact on exchange rates volatility rather than net bond flows..
References
Bacchetta, P., & van Wincoop, E. (2000). Trade in nominal assets and net international capital flows. Journal of International Money and Finance, 19, 55–72. https://doi.org/10.1016/S0261-5606(99)00029-0
Barguellil, A., Ben-Salha, O., & Zmami, M. (2018). Exchange rate volatility and economic growth. Journal of Economic Integration, 33(2), 1302–1336. https://doi.org/10.11130/jei.2018.33.2.1302
Bathia, D., Choudhry, T., & Choudhry, M. (2020). Cross-border capital flows and return dynamics in emerging stock markets: Relative roles of equity and debt flows. Journal of International Money and Finance, 109, 102258. https://doi.org/10.1016/j.jimonfin.2020.102258
Bayoumi, T. A. (1990). Saving-investment correlations: Immobile capital, government policy or endogenous behaviour? IMF Staff Papers, 37, 360–387.
Bodart, V., & Reding, P. (1999). Exchange rate regime, volatility and international correlations on bond and stock markets.
Bollerslev, T. (1986). Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics, 31(3), 307–327. https://doi.org/10.1016/0304-4076(86)90063-1
Brennan, M. J., & Cao, H. H. (1997). International portfolio investment flows. Journal of Finance, 52, 1851–1880. https://doi.org/10.1111/j.1540-6261.1997.tb01166.x
Brooks, R., Edison, H., Kumar, M. S., & Slok, T. (2004). Exchange rates and capital flows. European Financial Management, 10, 511–533. https://doi.org/10.1111/j.1468-036X.2004.00230.x
Calvo, G., & Reinhart, C. (2002). Fear of floating. Quarterly Journal of Economics, 117(2), 379–408. https://doi.org/10.1162/003355302753650274
Caporale, G. M., Chen, S. S., & Spagnolo, N. (2017). International portfolio flows and exchange rate volatility in emerging Asian markets. Journal of International Money and Finance, 76, 1–15. https://doi.org/10.1016/j.jimonfin.2017.03.002
Caporale, G. M., Menla Ali, F., & Spagnolo, N. (2015). Exchange rate uncertainty and international portfolio flows: A multivariate GARCH-in-mean approach. Journal of International Money and Finance, 54, 70–92. https://doi.org/10.1016/j.jimonfin.2015.02.020
Charles, A., & Darné, O. (2019). The accuracy of asymmetric GARCH model estimation. International Economics, 157, 179–202. https://doi.org/10.1016/j.inteco.2018.11.001
Chen, J. (2022a). Common stock: What it is, different types, vs. preferred stock. Investopedia. https://www.investopedia.com/terms/c/commonstock.asp
Chen, J. (2022b). Exchange rates: What they are, how they work, why they fluctuate. Investopedia. https://www.investopedia.com/terms/e/exchangerate.asp
Chen, Q., Filardo, A. J., He, D., & Zhu, M. (2016). Financial crisis, US unconventional monetary policy and international spillovers. Journal of International Money and Finance, 67, 62–81. https://doi.org/10.1016/j.jimonfin.2015.06.011
Chen, S. S. (2006). Revisiting the interest rate–exchange rate nexus: A Markov-switching approach. Journal of Development Economics, 79, 208–224. https://doi.org/10.1016/j.jdeveco.2005.03.002
Chinn, M. (1989). A tale of two markets: Capital market integration and the determination of exchange rates. In R. O'Brien & T. Datta (Eds.), International economics and financial markets (pp. 193–214). Oxford University Press.
Creswell, J. W. (2014). Research design: Qualitative, quantitative, and mixed methods approaches (4th ed.). Sage Publications.
Dadan Kusnandar, M. S. M. (2020). Pemodelan dan peramalan volatilitas saham menggunakan model integrated generalized autoregressive conditional heteroscedasticity. Bimaster: Buletin Ilmiah Matematika, Statistika dan Terapannya, 9(1), 79–86. https://doi.org/10.26418/bbimst.v9i1.38669
Edison, H. J., & Warnock, F. E. (2008). Cross-border listings, capital controls, and equity flows to emerging markets. Journal of International Money and Finance, 27, 1013–1027. https://doi.org/10.1016/j.jimonfin.2008.07.001
Girard, E., & Omran, M. (2009). On the relationship between trading volume and stock price volatility in CASE. International Journal of Managerial Finance, 5(1), 110–134. https://doi.org/10.1108/17439130910932369
Ibraheem, A. (2020). Exchange rate pass-through to stock prices: A multi GARCH approach. Munich Personal RePEc Archive. https://mpra.ub.uni-muenchen.de/98442/
International Monetary Fund. (2023). Exchange rates indicator. International Financial Statistics. https://data.imf.org/?sk=4c514d48-b6ba-49ed-8ab9-52b0c1a0179b
Juhro, S. M., & Azwar, P. (2021). FX intervention strategy and exchange rate stability in Indonesia. Bank Sentral Republik Indonesia [Preprint].
Lovcha, Y., & Perez-Laborda, A. (2013). Is exchange rate-customer order flow relationship linear? Evidence from the Hungarian FX market. Journal of International Money and Finance, 35, 20–35. https://doi.org/10.1016/j.jimonfin.2013.02.002
MG Westri Kekalih Susilowati. (2022). Waspada “Taper Tantrum.” Kompas.id. https://www.kompas.id/baca/opini/2022/10/16/waspada-taper-tantrum
Milesi-Ferretti, G. M., & Tille, C. (2011). The great retrenchment: International capital flows during the global financial crisis. Economic Policy, 26, 289–346. https://doi.org/10.1111/j.1468-0327.2011.00252.x
Muharam, H. (2013). Government bond yield volatility and its determinants: The case of Indonesia government bond. SSRN. http://ssrn.com/abstract=2366806
Muktiyanto, I., & Aulia, M. (2019). Determinan tingkat imbal hasil (yield) surat berharga negara (SBN) domestik. Kajian Ekonomi Dan Keuangan, 3(1), 18–30. https://doi.org/10.31685/kek.v3i1.190
Ninanussornkul, C., McAleer, M., & A.S.S. (2009). Modelling the stock and bond return and volatility in South-East Asia. Thailand Econometrics Society, 1(1), 43–59.
Otoritas Jasa Keuangan. (2023). Saham. Sikapi - OJK. https://sikapiuangmu.ojk.go.id/FrontEnd/CMS/Category/64
Quantitative easing. (2023, April 8). Wikipedia. https://en.wikipedia.org/wiki/Quantitative_easing
Raddatz, C., Schmukler, S. L., & Williams, T. (2017). International asset allocations and capital flows: The benchmark effect. Journal of International Economics, 108, 413–430. https://doi.org/10.1016/j.jinteco.2017.06.007
Susanti, M., Mastur, Z., & Mariani, S. (2016). Analisis model threshold GARCH dan model exponential GARCH pada peramalan IHSG. Unnes Journal of Mathematics, 5(1), 55–63.
The American Deposit Management Co. (2021, December 22). History of quantitative easing in the U.S. https://americandeposits.com/history-quantitative-easing-united-states/
Tyas, M. P., & Afifi, M. M. (2021). Analisis dampak quantitative easing terhadap pasar saham di negara maju dan negara berkembang. Jurnal Keuangan Dan Perbankan, 25(3), 379–388. https://doi.org/10.26905/jkdp.v25i3.6036
U.S. Department of the Treasury. (2022). Debt to the penny. TreasuryDirect. https://www.treasurydirect.gov/govt/reports/pd/pd_debt.htm
Wang, K. (2020). The relationship between exchange rate and capital flow: Evidence from China’s capital account liberalization. International Review of Economics and Finance, 67, 26–40. https://doi.org/10.1016/j.iref.2020.03.007
Yang, L., & Wei, Y. (2020). Analysis of influencing factors of capital flows to emerging markets: An empirical study of BRICS countries. Journal of International Money and Finance, 106, 102120. https://doi.org/10.1016/j.jimonfin.2020.102120
Zhang, Y., & Wang, Z. (2020). Effects of monetary policy on exchange rate pass-through: Evidence from China. Journal of International Money and Finance, 104, 102136. https://doi.org/10.1016/j.jimonfin.2020.102136
