Fed Fund Rate: A Dominant Factor of Fortfolio Flows in Southeast Asia
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Apr 30, 2024
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Abstract
The impact of globalization on cross-country portfolio investment is the high flow of stocks and bonds with the primary goal of taking high yields from rising prices without aiming to own a company. Emerging markets have generally been net recipients of foreign capital in recent decades, including the countries in Southeast Asia consisting of Indonesia, the Philippines, Malaysia, Singapore, and Thailand. The Fed Fund Rate is believed to be the most influential factor in portfolio flows to various emerging market countries. This study will model portfolio equity flows to Southeast Asia over the last 20 years. Model testing uses the moderation analysis process model 4 by Andrew F. Hayes. The findings of this study indicate that the Fed Funds Rate has a greater effect on Southeast Asia's Equity Flows Portfolio than Internal Gross Domestic Product, which indicates the economic strength of a country in Southeast Asia.
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References
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Dahlhaus, T. and Vasishtha, G. (2014) ‘The Impact of U.S. Monetary Policy Normalization on Capital Flows to Emerging-Market Economies’, Bank of Canada, pp. 1–25.
Driessen, J. and Laeven, L.A. (2012) ‘International Portfolio Diversification Benefits: Cross-Country Evidence from a Local Perspective’, SSRN Electronic Journal [Preprint]. Available at: https://doi.org/10.2139/ssrn.1870872.
Ehrmann, M. and Fratzscher, M. (2007) ‘Communication by Central Bank Committee Members : Different Strategies , Same Effectiveness ?’, 39(2).
Eun, C. and Resnik, B. (2015) International financial Mangement 7e. 7th edn, McGraw Hill. 7th edn. New York: McGraw-Hill Education.
Fernandez-Arias, E. (1996) ‘The new wave of private capital inflows: Push or pull?’, Journal of Development Economics, 48(2), pp. 389–418. Available at: https://doi.org/10.1016/0304-3878(95)00041-0.
Feroli, M. et al. (2014) Market Tantrums and Monetary Policy, SSRN Electronic Journal. Available at: https://doi.org/10.2139/ssrn.2409092.
Fratzscher, M. (2012) ‘Capital flows, push versus pull factors and the global financial crisis’, Journal of International Economics, 88(2), pp. 341–356. Available at: https://doi.org/10.1016/j.jinteco.2012.05.003.
Gossel, S.J. and Beard, A. (2019) ‘Governance and portfolio flows in Sub-Saharan Africa’, Applied Economics Letters, 26(11), pp. 883–887. Available at: https://doi.org/10.1080/13504851.2018.1510467.
Jankus, J. (1998) ‘The recent history of international diversification’, Journal of Investing, (7), pp. 67–76.
Kartal, M.T., Ertuğrul, H.M. and Ulussever, T. (2022) ‘The impacts of foreign portfolio flows and monetary policy responses on stock markets by considering COVID-19 pandemic: Evidence from Turkey’, Borsa Istanbul Review, 22(1), pp. 12–19. Available at: https://doi.org/10.1016/j.bir.2021.06.003.
Koepke, R. (2018) ‘Fed policy expectations and portfolio flows to emerging markets’, Journal of International Financial Markets, Institutions and Money, 55(July), pp. 170–194. Available at: https://doi.org/10.1016/j.intfin.2018.03.003.
Laurent L. Jacque (2020) International Corporate Finance. 2nd edn. New Jersey: John Wiley & Sons, Inc.
Mankiw N, G. (2017) Principles of Macroeconomics. Boston: Cengage Learning.
Marino, W.S. et al. (2021) ‘Drivers of Portfolio Equity Flows to Emerging Market Countries’, Proceedings of the 5th Global Conference on Business, Management and Entrepreneurship (GCBME 2020), 187(Gcbme 2020), pp. 53–57. Available at: https://doi.org/10.2991/aebmr.k.210831.011.
Marino, W.S., Nugraha and Waspada, I. (2024) The Fed Interest Rate as the Dominant Factor of Portfolio Equity Flows. Atlantis Press International BV. Available at: https://doi.org/10.2991/978-94-6463-234-7_8.
Markowitz, H. (1952) ‘Portfolio selection’, Journal of Finance, 7, pp. 77–91.
Onyiriuba, L. (2016) ‘Questions in the Making of Emerging Economies and Markets’, Emerging Market Bank Lending and Credit Risk Control, pp. 5–24. Available at: https://doi.org/10.1016/b978-0-12-803438-5.00001-5.
Padhan, R. and Prabheesh, K.P. (2021) ‘The economics of COVID-19 pandemic: A survey’, Economic Analysis and Policy, 70, pp. 220–237. Available at: https://doi.org/10.1016/j.eap.2021.02.012.
Passari, E. and Rey, H. (2015) ‘Financial Flows and the International Monetary System’, Economic Journal, 125(584), pp. 675–698. Available at: https://doi.org/10.1111/ecoj.12268.
Sarılı, S. (2015) ‘Determinants of GDP Growth in F5 Economies: Panel Data Analysis’, The Macrotheme Review, 4(7), pp. 144–160.
Schnidman, E.A. and MacMillan, W.D. (2016) How the fed moves markets: Central bank analysis for the modern era, How the Fed Moves Markets: Central Bank Analysis for the Modern Era. Available at: https://doi.org/10.1057/9781137432582.
Solnik, B.H. (1974) ‘Why Not Diversify Internationally Rather Than Domestically?’, Financial Analysts Journal, 30(4), pp. 48–54. Available at: https://doi.org/10.2469/faj.v30.n4.48.
Solnik, B.H. and Noetzlin, B. (1982) ‘Optimal international asset allocation’, Journal of Portfolio Management, 9, pp. 11–21.
Taylor, M.P. and Sarno, L. (1997) ‘Capital Flows to Developing Countries : Long- and Short-Term Determinants’, pp. 451–470.
Tille, C. and van Wincoop, E. (2010) ‘International capital flows’, Journal of International Economics, 80(2), pp. 157–175. Available at: https://doi.org/10.1016/j.jinteco.2009.11.003.
Vayid, I. (2013) ‘Central Bank Communications Before , During and After the Crisis : From Open-Market Operations to Open-Mouth Policy’, Bank of Canada Working Paper 2013-41 [Preprint].
De Vita, G. and Kyaw, K.S. (2008) ‘Determinants of capital flows to developing countries: A structural VAR analysis’, Journal of Economic Studies, 35(4), pp. 304–322. Available at: https://doi.org/10.1108/01443580810895608.
Zainuri, Z. (2021) ‘Effectiveness of controlling foreign portfolio investment inflows using macroeconomic policy instruments and institutional strengthening (case study in Indonesia and Thailand)’, Jurnal Penelitian Ekonomi dan Bisnis, 6(2), pp. 121–134. Available at: https://doi.org/10.33633/jpeb.v6i2.4446.
Afonso, A. et al. (2022) ‘Financial, Institutional , and Macroeconomic Determinants of Cross-Country Portfolio Equity Flows’.
Agarwal, I., Gu, G.W. and Prasad, E. (2020) The Determinants of China’s International Portfolio Equity Allocations, IMF Economic Review. Palgrave Macmillan UK. Available at: https://doi.org/10.1057/s41308-020-00113-5.
Ahmed, S. and Zlate, A. (2014) ‘Capital flows to emerging market economies: A brave new world?’, Journal of International Money and Finance, 48(PB), pp. 221–248. Available at: https://doi.org/10.1016/j.jimonfin.2014.05.015.
Aslam, M., Alim, W. and Khan, N. (2022) ‘Nexus between Capital Flows and Economic Growth: An Evidence from South Asian Countries’, Journal of Economic Impact, 4(2), pp. 14–21. Available at: https://doi.org/10.52223/jei4022202.
Bado, B., Samudera, A. and Ma’ruf, M.I. (2019) ‘Analisis aliran modal asing ke indonesia dengan Pull and push factors’, Jurnal Ad’ministrare, 5(2), p. 77. Available at: https://doi.org/10.26858/ja.v5i2.7884.
Baek, I.M. (2006) ‘Portfolio investment flows to Asia and Latin America: Pull, push or market sentiment?’, Journal of Asian Economics, 17(2), pp. 363–373. Available at: https://doi.org/10.1016/j.asieco.2006.02.007.
Bannier, C.E., Heyden, T. and Tillmann, P. (2019) ‘Rating changes and portfolio flows to emerging markets: Evidence from active and passive funds’, Economics Letters, 178, pp. 37–45. Available at: https://doi.org/10.1016/j.econlet.2019.02.009.
Bartram, S.M. and Dufey, G. (2005) ‘International Portfolio Investment: Theory, Evidence, and Institutional Framework’, SSRN Electronic Journal [Preprint], (3). Available at: https://doi.org/10.2139/ssrn.270196.
Bathia, D. et al. (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, p. 102258. Available at: https://doi.org/10.1016/j.jimonfin.2020.102258.
Bekaert, G. and Urias, M.S. (1999) ‘Is there a free lunch in emerging market equities?: In some market, but investors need to be more selective going forward’, Journal of Portfolio Management, 25(3), pp. 83–95. Available at: https://doi.org/10.3905/jpm.1999.319718.
Black, F. and Litterman, R. (1991) ‘Global Portfolio Optimization’, Financial Analysts Journa, (48), pp. 28–43.
Boonman, T.M. (2023) ‘Have drivers of portfolio capital flows changed since the Global Financial Crisis?’, Munich Personal RePEc Archive [Preprint], (116507).
Calvo, G.A., Leiderman, L. and Reinhart, C.M. (1996) ‘Inflows of Capital to Developing Countries in the 1990s’, Journal of Economic Perspectives, 10(2), pp. 123–139. Available at: https://doi.org/10.1257/jep.10.2.123.
Camanho, N., Hau, H. and Rey, H. (2022) ‘Global Portfolio Rebalancing and Exchange Rates’, Review of Financial Studies, 35(11), pp. 5228–5274. Available at: https://doi.org/10.1093/rfs/hhac023.
Chari, A., Dilts Stedman, K. and Lundblad, C.T. (2022) ‘Global Fund Flows and Emerging Market Tail Risk’, SSRN Electronic Journal [Preprint]. Available at: https://doi.org/10.2139/ssrn.4259488.
Chuhan, P., Claessens, S. and Mamingi, N. (1998) ‘Equity and bond flows to Latin America and Asia: the role of global and country factors’, Journal of Development Economics, 55(2), pp. 439–463. Available at: https://doi.org/10.1016/S0304-3878(98)00044-3.
Dahlhaus, T. and Vasishtha, G. (2014) ‘The Impact of U.S. Monetary Policy Normalization on Capital Flows to Emerging-Market Economies’, Bank of Canada, pp. 1–25.
Driessen, J. and Laeven, L.A. (2012) ‘International Portfolio Diversification Benefits: Cross-Country Evidence from a Local Perspective’, SSRN Electronic Journal [Preprint]. Available at: https://doi.org/10.2139/ssrn.1870872.
Ehrmann, M. and Fratzscher, M. (2007) ‘Communication by Central Bank Committee Members : Different Strategies , Same Effectiveness ?’, 39(2).
Eun, C. and Resnik, B. (2015) International financial Mangement 7e. 7th edn, McGraw Hill. 7th edn. New York: McGraw-Hill Education.
Fernandez-Arias, E. (1996) ‘The new wave of private capital inflows: Push or pull?’, Journal of Development Economics, 48(2), pp. 389–418. Available at: https://doi.org/10.1016/0304-3878(95)00041-0.
Feroli, M. et al. (2014) Market Tantrums and Monetary Policy, SSRN Electronic Journal. Available at: https://doi.org/10.2139/ssrn.2409092.
Fratzscher, M. (2012) ‘Capital flows, push versus pull factors and the global financial crisis’, Journal of International Economics, 88(2), pp. 341–356. Available at: https://doi.org/10.1016/j.jinteco.2012.05.003.
Gossel, S.J. and Beard, A. (2019) ‘Governance and portfolio flows in Sub-Saharan Africa’, Applied Economics Letters, 26(11), pp. 883–887. Available at: https://doi.org/10.1080/13504851.2018.1510467.
Jankus, J. (1998) ‘The recent history of international diversification’, Journal of Investing, (7), pp. 67–76.
Kartal, M.T., Ertuğrul, H.M. and Ulussever, T. (2022) ‘The impacts of foreign portfolio flows and monetary policy responses on stock markets by considering COVID-19 pandemic: Evidence from Turkey’, Borsa Istanbul Review, 22(1), pp. 12–19. Available at: https://doi.org/10.1016/j.bir.2021.06.003.
Koepke, R. (2018) ‘Fed policy expectations and portfolio flows to emerging markets’, Journal of International Financial Markets, Institutions and Money, 55(July), pp. 170–194. Available at: https://doi.org/10.1016/j.intfin.2018.03.003.
Laurent L. Jacque (2020) International Corporate Finance. 2nd edn. New Jersey: John Wiley & Sons, Inc.
Mankiw N, G. (2017) Principles of Macroeconomics. Boston: Cengage Learning.
Marino, W.S. et al. (2021) ‘Drivers of Portfolio Equity Flows to Emerging Market Countries’, Proceedings of the 5th Global Conference on Business, Management and Entrepreneurship (GCBME 2020), 187(Gcbme 2020), pp. 53–57. Available at: https://doi.org/10.2991/aebmr.k.210831.011.
Marino, W.S., Nugraha and Waspada, I. (2024) The Fed Interest Rate as the Dominant Factor of Portfolio Equity Flows. Atlantis Press International BV. Available at: https://doi.org/10.2991/978-94-6463-234-7_8.
Markowitz, H. (1952) ‘Portfolio selection’, Journal of Finance, 7, pp. 77–91.
Onyiriuba, L. (2016) ‘Questions in the Making of Emerging Economies and Markets’, Emerging Market Bank Lending and Credit Risk Control, pp. 5–24. Available at: https://doi.org/10.1016/b978-0-12-803438-5.00001-5.
Padhan, R. and Prabheesh, K.P. (2021) ‘The economics of COVID-19 pandemic: A survey’, Economic Analysis and Policy, 70, pp. 220–237. Available at: https://doi.org/10.1016/j.eap.2021.02.012.
Passari, E. and Rey, H. (2015) ‘Financial Flows and the International Monetary System’, Economic Journal, 125(584), pp. 675–698. Available at: https://doi.org/10.1111/ecoj.12268.
Sarılı, S. (2015) ‘Determinants of GDP Growth in F5 Economies: Panel Data Analysis’, The Macrotheme Review, 4(7), pp. 144–160.
Schnidman, E.A. and MacMillan, W.D. (2016) How the fed moves markets: Central bank analysis for the modern era, How the Fed Moves Markets: Central Bank Analysis for the Modern Era. Available at: https://doi.org/10.1057/9781137432582.
Solnik, B.H. (1974) ‘Why Not Diversify Internationally Rather Than Domestically?’, Financial Analysts Journal, 30(4), pp. 48–54. Available at: https://doi.org/10.2469/faj.v30.n4.48.
Solnik, B.H. and Noetzlin, B. (1982) ‘Optimal international asset allocation’, Journal of Portfolio Management, 9, pp. 11–21.
Taylor, M.P. and Sarno, L. (1997) ‘Capital Flows to Developing Countries : Long- and Short-Term Determinants’, pp. 451–470.
Tille, C. and van Wincoop, E. (2010) ‘International capital flows’, Journal of International Economics, 80(2), pp. 157–175. Available at: https://doi.org/10.1016/j.jinteco.2009.11.003.
Vayid, I. (2013) ‘Central Bank Communications Before , During and After the Crisis : From Open-Market Operations to Open-Mouth Policy’, Bank of Canada Working Paper 2013-41 [Preprint].
De Vita, G. and Kyaw, K.S. (2008) ‘Determinants of capital flows to developing countries: A structural VAR analysis’, Journal of Economic Studies, 35(4), pp. 304–322. Available at: https://doi.org/10.1108/01443580810895608.
Zainuri, Z. (2021) ‘Effectiveness of controlling foreign portfolio investment inflows using macroeconomic policy instruments and institutional strengthening (case study in Indonesia and Thailand)’, Jurnal Penelitian Ekonomi dan Bisnis, 6(2), pp. 121–134. Available at: https://doi.org/10.33633/jpeb.v6i2.4446.