The impact of foreign equity investment flows on global linkages of the Asian emerging equity markets

Abstract

Evidence of the impact of foreign equity investment flows on the global linkages of the Asian emerging equity markets is provided. Findings confirm that there is a general trend towards greater integration and this process appears to be influenced by the increasing volumes of foreign equity portfolio investment flows. The results support the widely-held view that foreign investors are return chasers and their trading behaviour is based on information drawn from recent returns available in the emerging markets. The results also confirm the price-pressure hypothesis which suggests that foreign equity investors are mainly responsible for the increases in the stock market valuations in the Asian emerging markets. In view of the findings, the Asian emerging markets may become more vulnerable to the changes in foreign investment flows and turn more volatile in future.