A1236
Title: Exchange rate volatility and emerging market portfolio flows
Authors: Faek Menla Ali - University of Sussex (United Kingdom) [presenting]
Abstract: The aim is to examine empirically the impact of exchange rate uncertainty on the level and the variability of net equity flows of the US vis-vis 14 developing and emerging countries, with monthly data over the period January 1993-November 2012. Our model is based on a near bivariate near VAR GARCH-BEKK-in-mean and allow the exchange rate uncertainty to compete with pull and push factors. The results indicate that the impact of exchange rate uncertainty on net equity inflows towards the US is positive in seven countries, negative in three countries, whilst four countries showed insignificant responses. These findings suggest that an increase in the volatility of the US dollar against the currencies of developing and emerging countries induces equity inflows from these countries towards the US. Furthermore, the results provide evidence of volatility transmission between exchange rate changes and net equity flows, with the causality running mostly from the latter to the former. Therefore, as a policy tool, credit controls on equity flows may be deemed to stabilise the foreign exchange markets.
