Global Risk Appetite,US Economic Policy Uncertainties and Cross-Border Capital Flow

Based on the global asset portfolio model,this paper created a panel threshold model using EPFR fund data to empirically test the non-linear spillover effects of US economic policy uncertainties on cross-border capital flow for emerging economies.Our study led to the following findings:(1)When the level of global investor risk tolerance is high,rising US EPU will induce a capital inflow into emerging economies,as manifested in the“portfolio rebalancing effect.”When the level of global investor risk tolerance is below a critical threshold,this gives rise to risk aversion and emerging economies will experience net capital outflow,i.e.the“flight to quality effect”.(2)Equity fund investors have a lower risk tolerance threshold than bond fund investors.(3)According to our heterogeneity analysis,more attention should be paid to monitoring capital flow through actively managed funds,ETF funds,and retail investor funds.The economy should increase financial efficiency and economic resiliency to mitigate capital outflow pressures from the external environment.

Corporate managers,price noise and the investment factor

This study investigates the impact of flows between bond and equity funds on investment factors over the period 1984–2015.It determines contemporaneous mispricing effects and a statistical reversal relation between these flows and both legs of the investment factor.The statistical reversal relationship between previous flows and the investment factor is economically significant.A one-standard-deviation shock to flows causes a 0.29%decrease in investment factor returns,which are reversed within 5 months.A trading strategy based on signals from past flows and the investment factor outperforms the market by 0.68%in the months following positive flows and produces significant alphas after accounting for well-known equity risk factors.The findings are interpreted as evidence in favor of a behavioral explanation,in which sentiment influences actual managerial decisions.When retail investors and managers are swept up in market euphoria,retail investors shift their holdings from bond to equity mutual funds,and high-investment firms invest more aggressively.Market-level euphoria has a different impact on high-and low-investment firms,and thus the investment factor can be influenced.Hence,the mispricing occurs during these periods,and the reversal relationship is especially pronounced for a high-investment portfolio versus a low-investment portfolio.As a result,during the months following periods of positive flows,the investment factor outperforms the market factor.Interestingly,this study’s measure of flows,which serves as a proxy for market-level euphoria,outperforms other measures of investor sentiment.

Why Has China's Current Account Balance Converged after the Global Financial Crisis?

China's current account surplus declined significantly from its peak of nearly 10 percentof GDP in 2007 to less than 1 percent in 2018.The new pattern offered fresh evidencefor our understanding of China's current account dynamics.In this paper,we used flowof funds data to gauge its underlying driving forces.Specifically,by employing indexdecomposition analysis,we decomposed the current account from the perspective ofsavings and investment into three sectors:the household,corporate,and governmentsectors.We found that the decline in China's current account ratio was first driven bycyclical factors,i.e.weak corporate saving growth induced by the economic slump in2009 as well as the following massive corporate investment bolstered by the governmentstimulus plan.However,such cyclical factors quickly subsided,and the subsequentcurrent account balance reduction was later supported by structural factors,i.e.household savings declined enduringly and the Chinese government switched to a moreexpansionary fiscal policy.There are three possible explanations for the structuralmovement:reduced precautionary saving due to higher social security coverage ratio,lower corporate profits as a result of economic slowdown,and a twin deficit due to thegovernment's more relaxed fiscal stance.The new facts,however,were not consistent withother current account theories focusing on long-term aspects of the saving-investmentaccount puzzle,especially those relating to China's special demographic characteristics.