Institutional investors’ allocation to emerging markets: A panel approach to asset demand

Abstract

This paper presents empirical evidence on the increasing allocation of institutional investors to emerging markets economies. It seeks to understand which factors are driving this increase, and how this relates to portfolio flows to such economies. By making use of the Emerging Portfolio FundResearch database, it estimates asset demand equations for emerging markets equities and bonds by institutional investors from advanced countries. These are estimated using recent advances in the panel autoregressive distributed lags models literature. Two key results emerge: balance sheet conditions of institutional investors and foreign exchange reserves in emerging markets affect asset allocation; secondly, quarterly returns matter for long-run asset allocations and the portfolio adjustment process is quick. These findings suggest that portfolio flows by institutional investors could still be procylical despit their more long-term horizon, and that additional variables should be monitored to ensure financial stability.

Subordinate Financialization in Emerging Capitalist Economies

“…Second, the nature of these flows has changed and has become highly complex characterized by new instruments, markets and international actors. As to the actors, traditional investors in ECEs (such as banks and dedicated funds) have been joined by a wide range of other actors, including institutional investors (pension, mutual and insurance funds) (Bonizzi, 2017b) and new types of mutual fund investors such as exchange-traded funds and macro hedge funds (Aron et al, 2010;Jones, 2012;Yuk, 2012). Given the enormous size of these financial investors, even a small reallocation of their portfolio can have a substantial impact on capital flows to ECEs.…”

“…Even long-term investors and those invested in domestic assets remain funded on international financial markets which maintains their sensitivity to international market conditions and depreciation pressures on ECEs' assets and currencies as funds need to be repatriated in the future. For example, Bonizzi (2017b) shows that despite their longer time horizons pension fund investment in ECEs will not act as a stabilizing force due to their need to match their liabilities, which are predominantly located in the capitalist core. Finally, probably one of the clearest manifestations of ECEs subordinated position in international finance has been the phenomenon of reserve accumulation.…”

House prices in the euro area

“…Because our panel data sample can be deÞ ned as a macro-panel (large T, time dimension, and moderate-to-large N, cross section dimension), according to the macro panel (or panel-time series) literature (see e.g. Baltagi and Pesaran, 2007;Baltagi, 2013;Bonizzi, 2017) the empirical analysis has to address the issues of cross-section dependence and (cross-section) heterogeneity. The cross-section dependence across cross-section units of the panel may be present only between some cross-section units due to physical or economic proximity (a weak form of cross-section dependence) or it may be pervasive across all or most cross-section units due to some common shocks (e.g.…”

The influence of heterogeneous institutional investors on company strategies in emerging countries: Evidence from Brazil

“…To explore this issue in EME, more structural aspects related to the subordinated position of EME within the international financial system should be considered (Bortz and Kaltenbrunner, 2018;Painceira, 2015, 2018). For instance, when addressing the case of emerging markets, it is crucial to consider not only the role of interest and exchange rates but also the role of the government bond market and its relationship with capital markets and with the corporate and financial pattern of NFC (Becker et al, 2010;Bin, 2016;Black et al, 2008;Bonizzi, 2017;Demir, 2007Demir, , 2009.…”