Abstract
This paper provides an analysis of the impact of international portfolio flows on security returns. It concludes that opening a country to portfolio flows decreases its cost of capital without adverse effects on its securities markets. There is no convincing evidence that portfolio flows increase the volatility of equity returns, lead to excessive co-movement of a country's equity returns with world equity returns, or destabilize security markets. Though there has been much concern about contagion, existing empirical evidence does not provide conclusive evidence that contagion is economically important for security markets.
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