The nexus between bond liquidity, stock liquidity and foreign portfolio investment

The purpose of this article was to assess the impact of financial market liquidity on international capital flows in emerging markets. Specifically, the research investigates the effect of bond market liquidity and stock market liquidity on foreign portfolio investments using data for five emerging African countries, being Egypt, Kenya, Mauritius, Nigeria and South Africa, for the period 2000 to 2020. The data was sourced from the Bloomberg and World Bank (WDI) databases. Panel data analysis (fixed effects model) was undertaken using three different liquidity measures: the effective spread; Amihud’s (2002) illiquidity measure; and market impact as measured by trading volume. Our findings revealed mixed results. It was found that stock market liquidity attracted foreign portfolio investments. Although bond market liquidity, as measured by the volume of trade, promoted foreign portfolio investment, it was different for the effective spread, as the higher the effective spread, the higher the inward FPI flows, and vice versa. Results on the effects of the bond effective spread on FPI show that as long as the bonds are above the investable grade, investors are not discouraged by the cost of trading. Our findings thus confirm that FPI inflows are predisposed on liquid and efficient host country financial markets. Further, the entrance of foreign investors in the host country’s domestic financial markets, leads to the enhancing of liquidity in the local market, thus increasing risk sharing between local and foreign investors.

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ANALYZING TIME EFFECT IN THE PUSH AND PULL FACTORS AFFECTING FOREIGN PORTFOLIO INVESTMENT IN INDONESIA STOCK MARKET (CASE STUDY OF FOREIGN BUYING DURING THE PERIOD 2003-2018)

Dinasti International Journal of Management Science ◽

10.31933/dijms.v2i5.876 ◽

2021 ◽

Vol 2 (5) ◽

pp. 777-794

Author(s):

Matrodji Mustafa ◽

Agustini Hamid

Keyword(s):

Exchange Rate ◽

Stock Market ◽

Market Liquidity ◽

Foreign Investor ◽

Portfolio Investment ◽

Pull Factors ◽

Push Factors ◽

Foreign Portfolio Investment ◽

Stock Market Return ◽

Stock Market Liquidity

This study examined the influence of pull and push factors on foreign portfolio investment in Indonesia Stock Market. Two measures of foreign portfolio investment are foreign investor total buying and foreign investor net buying. The pull factors are represented by Return on Jakarta Composite Index, Jakarta Stock Marker liquidity, IDR Exchange Rate, and Infation Rate. The push factors included are return on Dow Jones Industrial Average, Yield on US Treasury Bill, and return on Gold. This study takes Foreign Investor Total Buying and Foreign Investor Net Buying as dependent variables. To accomodate time or year effect, a panel data regression is employed as analytical tool. Processing monthly data from January 2003 to December 2018, and using Foreign Investor Total Buying as dependent variable, this study finds that exchange rate and stock market liquidity affect the foreign investor total buying significantly. The negative coefficients of exchange rate and the positive coefficient of stock market liquidity support the hypotheses. The regression on Net Buying shows that exchange rate, stock market return, and stock market liquidity affect foreign investor net buying significantly. The negative coefficient of exchange rate and positive coefficient of stock market return support the hypotheses while the negative coefficient of stock market liquidity does not. The individual year fixed effect and individual year random are present in the first and second regressions repectively. In both regressions, no variables in push factors affect foreign portfolio investment significantly. hence, the foreign portfolio investment in Indonesia is affected only by pull factors

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Portfolio investment as a factor for the development of the Russian economy as one of the BRIC countries

Ekonomia Międzynarodowa ◽

10.18778/2082-4440.19.01 ◽

2017 ◽

pp. 116-133

Author(s):

Magdalena Broszkiewicz

Keyword(s):

Financial Markets ◽

First Century ◽

Portfolio Investment ◽

Domestic Investment ◽

Financial Flows ◽

Foreign Investors ◽

Bric Countries ◽

Russian Economy ◽

Twenty First Century ◽

Portfolio Investments

Portfolio investments have an impact on the development of financial markets around the world, especially in countries of growing importance for the global economy. Russia is one of the countries which are mainly linked to the energy and raw materials sector, so at a time of fluctuations on those markets, its economy is less predictible for international investors. The regulations for investors in this country (also non-residents) need to be improved to overcome the negative effects of world financial crisises and to rebuild financial markets. Russia is also an economy with large amounts of capital to invest, so it is interesting to observe its financial flows to other countries in the situation when existing regulations are stopping capital for domestic investment. The following article analyzes the flows of portfolio investment in Russia in the twenty-first century based on balance of payments data in conjunction with changes in the geopolitical situation and the investment attractiveness of the country. Capital invested in the form of portfolio investments is fragile and often short-term, and it is most vulnerable to periods of recession, causing rapid changes in the flow of this kind of capital. These relationships can be clearly observed in Russia. The strong interest of foreign investors in the Russian economy, in the form of direct and portfolio investments, started in 2000 and lasted until 2006. In the first half of 2008, decreases were slow compared to the record high of the previous year, but from September they accelerated to such an extent that by the end of the year they had reached almost 100%, depicting a sharp decline of foreign investors’ interest in the Russian securities market. This translated into a decline on the Russian stock market. The Russian economy since the beginning of the twenty-first century has experienced a significant influx of foreign capital, including in the form of portfolio investment. However, in comparison with the possibilities of the development of the economic potential of Russia, it is still a small amount.

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Exploring the Role of Local Financial Markets in the Portfolio Investment-Growth Nexus

Advanced Perspectives on Global Industry Transitions and Business Opportunities - Advances in Business Strategy and Competitive Advantage ◽

10.4018/978-1-7998-4303-0.ch009 ◽

2021 ◽

pp. 175-188

Author(s):

Friday Osemenshan Anetor ◽

Simeon Oludiran Akinleye ◽

Folorunso Sunday Ayadi

Keyword(s):

Economic Growth ◽

Financial Markets ◽

Generalized Method Of Moments ◽

Recipient Country ◽

Portfolio Investment ◽

Foreign Portfolio Investment ◽

Sub Saharan ◽

Investment Growth ◽

Portfolio Investments

In recent times, foreign portfolio investment inflows have been considered pivotal to sub-Saharan Africa's growth (SSA) as they help enhance liquidity and make a substantial fund available for investment. However, some scholars have stressed that the sustainable inflows of portfolio investments and their impact on growth depend on the extent to which the recipient country can develop its local financial markets. As a result, this chapter aims to determine the moderating role of local financial markets in facilitating the effects of portfolio investments on economic growth in 28 SSA between the period 1995-2018. The study employed the system generalized method of moments (SGMM) and found that portfolio investments positively and significantly impact economic growth. However, the study observes that the interaction between portfolio investments and financial market development is negative and significant, presupposing that the relationship between portfolio investment and economic growth is not contingent on local financial markets.

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INFLUENCE OF STOCK MARKET LIQUIDITY ON THE GROWTH OF CORPORATE BOND MARKET IN KENYA

International Journal of Finance ◽

10.47941/ijf.55 ◽

2017 ◽

Vol 2 (2) ◽

pp. 47

Author(s):

Dr. David W. Wanyama

Keyword(s):

Stock Market ◽

Corporate Bonds ◽

Secondary Data ◽

Bond Market ◽

Market Liquidity ◽

Corporate Bond ◽

Unique Contribution ◽

Corporate Bond Market ◽

Stock Market Liquidity ◽

To Come

Purpose: The purpose of this study was to analyze how stock market liquidity influence the growth of corporate bond market in Kenya.Methodology: The study used descriptive and causal research designs. Secondary data was used. The sample of the study consisted of daily and monthly time series covering six years beginning January 2009 to December 2014. Unit root tests using Augmented Dickey-Fuller (ADF) and Phillips-Perron tests were done. The study used Eviews econometric software to facilitate empirical analysis of data.Results: Regression of coefficients results shows that stock market liquidity and corporate bonds are positively and significant related (r=8.291, p=0.0008).Unique Contribution to Theory, Practice and Policy: This study recommends study recommends for Policy makers to come up with measures to enhance the liquidity of the stock market which will in turn encourage investment in corporate bonds.

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Determinants of foreign portfolio flows to Indian debt market

Journal of Indian Business Research ◽

10.1108/jibr-01-2019-0024 ◽

2020 ◽

Vol 12 (4) ◽

pp. 459-479

Author(s):

Kirti Gupta ◽

Shahid Ahmed

Keyword(s):

Interest Rate ◽

Stock Market ◽

Bond Market ◽

Content Type ◽

Foreign Portfolio Investment ◽

Portfolio Flows ◽

Indirect Measures ◽

Stock Market Performance ◽

Debt Market ◽

Portfolio Investments

Purpose The volatile nature of foreign portfolio flows, especially flows into debt market, has large implications on financial and macroeconomic stability in recipient countries. It is necessary to identify the main drivers of portfolio investments in bond market of developing economies to design effective policies to enhance resilience of the economy and help in managing capital flow volatility. The determinants of foreign portfolio investment to Indian equity market have been examined in literature, but flows to bond market remain unexplored. Thus, the purpose of this paper is to identify the possible determinants of foreign portfolio flows to Indian bond market both in the short and in the long run. Design/methodology/approach This study carries out a time series analysis by deploying autoregressive distributed lag (ARDL) approach to cointegration of monthly data of the period from January 2002 to December 2016 for the Indian economy. A mix of pull and push factors has been analysed in this study. Domestic growth, domestic stock market performance, interest rate differential, exchange rate, volatility in exchange rate, stock market returns in other emerging economies, foreign output growth and dummy variables to trace the external developments such as global financial crisis and unconventional monetary policies of advanced economies have been used as explanatory variables. Findings The dominant pull factor such as interest rate differential explains the dynamics of flows in Indian bond market. The relationship between capital movements and interest rate differentials is the most accepted paradigm in international finance (Haynes, 1988). Among other domestic factors are stock market performance, volatility in exchange rates and domestic growth rates which are found to be significant drivers of foreign portfolio bond flows to India. The study also confirmed that global conditions could induce a fast outflow of capital from India. Research limitations/implications The study concludes that both domestic factors and external factors are equally important in determining the foreign portfolio investments in the Indian debt market. Practical implications The empirical analysis conducted in this study suggests that direct and indirect measures can be taken to increase and stabilise foreign investments in the Indian bond market. Direct policy measures refer to those tools which are under the ambit of policymakers. Indirect measures comprise those tools that are not under the direct control of the fiscal and monetary authorities but require coordinated efforts of the government and private sector. In this context, strengthening of not only financial and economic but also administrative institutions will be necessary. Creditworthiness and policy credibility should be improved to address erratic foreign portfolio investment in debt market of India. Originality/value This study is an original research study. This study adds to the existing literature and is expected to guide policymakers on the specific aspect of the management of capital flows as it gets affected by changes in monetary and fiscal policies.

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Revisiting the need to regulate foreign portfolio investor in the Indonesian stock market

Jurnal Ilmiah Hukum LEGALITY ◽

10.22219/ljih.v29i2.15216 ◽

2021 ◽

Vol 29 (2) ◽

pp. 184-199

Author(s):

Ulya Yasmine Prisandani ◽

Felix Pratama Tjipto

Keyword(s):

Comparative Analysis ◽

Stock Market ◽

South Korea ◽

Stock Exchange ◽

Portfolio Investment ◽

Empirical Methods ◽

Foreign Portfolio Investment ◽

Portfolio Investments ◽

Laws And Regulations

This research aims to reintroduce the issue of foreign portfolio investment in Indonesia by way of presenting an analysis on the prevailing Indonesian laws and regulations, comparative analysis with well-established jurisdictions, as well as an evaluation on the need for regulating foreign portfolio investment in Indonesia. The methods used in this research combine normative and empirical methods where a review is conducted on the laws and regulations in Indonesia as well as in South Korea and India as comparative jurisdictions, in addition to an interview conducted with the Indonesian Stock Exchange. The research found that Indonesia does not have a separate, comprehensive set of regulations on foreign portfolio investments yet whereby inferences need to be made from the prevailing laws and regulations that are general in nature. After the comparative overview and analysis, there appears to be a need for separate regulation for foreign portfolio investments in Indonesia, either by way of enacting a completely new set of laws and regulations or alternatively, by way of creating implementing regulations to support the prevailing laws.

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Liquidity in Asian Financial Markets: Crowding Out or Spillover Effect

Applied Finance Letters ◽

10.24135/afl.v9i2.251 ◽

2020 ◽

Vol 9 (SI) ◽

pp. 90-102

Author(s):

Sonal Thukral ◽

Rahul Sikka

Keyword(s):

Stock Market ◽

Spillover Effect ◽

Bond Market ◽

Market Liquidity ◽

The Other ◽

Corporate Bond ◽

Crowding Out ◽

Corporate Bond Market ◽

Stock Market Liquidity ◽

The Impact

The paper attempts to explore the relationship between the stock market and the corporate bond market, with a focus on the inter-dependency of liquidity between the two markets. The study employs a panel dataset to assess the impact of stock market liquidity on the corporate bond market liquidity for top five Asian economies (ranked by GDP) for the period 2008-2017. In contrast to limited number of earlier studies that reported a spillover effect of liquidity among the markets for stock and government bonds, the results of the present study convey that an increase in stock market liquidity tends to eat up the liquidity of the corporate bonds, even after controlling for government bond yield and inflation rate changes. The findings indicate a crowding out effect instead of a spillover effect, as indicated by related studies. The ‘flight-to-quality’ argument provides one possible explanation of liquidity moving away from one market to the other. This has an implication that if regulators’ policies are focused in developing only one type of market, it may crowd out the liquidity and the development of the other market. The study suggests the government to focus more on corporate bond market, which is yet to flourish in the Asian markets as compared to its stock market counterparts. The paper is one of the few attempts that focus on the corporate bond market and its liquidity and aims to ignite a debate on the possible linkages between liquidity of corporate bond market and the stock market.

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FINANCIAL MARKET PERFORMANCE AND FOREIGN PORTFOLIO INFLOWS TO NIGERIA: AUTOREGRESSIVE DISTRIBUTIVE LAG APPROACH

International Journal of Research -GRANTHAALAYAH ◽

10.29121/granthaalayah.v5.i6.2017.2100 ◽

2017 ◽

Vol 5 (6) ◽

pp. 673-688

Author(s):

Adesola W. Adebisi ◽

Oka Felix Arikpo

Keyword(s):

Stock Market ◽

Causal Relationship ◽

Financial Market ◽

Market Performance ◽

Market Liquidity ◽

Portfolio Investment ◽

Foreign Portfolio Investment ◽

Long Run ◽

Stock Market Performance ◽

Short Run

This study examined the relationship between financial market performance and foreign portfolio investment in Nigeria. The study specifically assessed whether there is a long run and short run causal relationship running from financial market performance to foreign portfolio investment in Nigeria. Financial market performance was measured using stock market performance, stock market liquidity and total new issues. The data for the study were source from the CBN statistical bulletin for the period 1984 to 2015. The exploratory design was combined with the ex-post facto research design; the data collection method was desk survey. The study used the Autoregressive Distributive Lag (ARDL) technique for data analysis. Findings from the analyses showed that financial market performance has no long run causal relationship with foreign portfolio investment in Nigeria. Also, stock market performance and stock market liquidity have no short run causal relationship with foreign portfolio investment in Nigeria. Lastly, total new issue has a short run causal relationship with foreign portfolio investment in Nigeria. The study on the basis of these findings recommends that stock market regulators should through conscious enlightenment campaigns encourage more domestic participation in the market to enhance the market performance, deepening and growth as this will strengthen its long run causality with FPI. Lastly, stock market regulators should through conscious risk reduction policies formulation and implementation reduce the riskiness of investing in the stock market to increase transactions and liquidity in the stock market, boost the rate of turnover to investors as this will attract foreign portfolio investors to the Nigerian financial market.

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