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Institutional Portfolio Flows and International Investments

Kenneth A. Froot¹; Tarun Ramadorai²

¹ Dana-Farber/Harvard Cancer Center · ² London Business School

Using a new technique, and weekly data for 25 countries from 1994 to 1998, we analyze the relationship between institutional cross-border portfolio flows, and domestic and foreign equity returns. In emerging markets, institutional flows forecast statistically indistinguishable movements in country closed-end fund NAV returns and price returns. In contrast, closed-end fund flows forecast price returns, but not NAV returns. Furthermore, institutional flows display trend-following (trend-reversing) behavior in response to symmetric (asymmetric) movements in NAV and price returns. The results suggest that institutional cross-border flows are linked to fundamentals, while closed-end fund flows are a source of price pressure in the short run.

DOI

10.1093/rfs/hhm091

Volume

21 (2)

Pages

937-971

Language

en

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