Emerging stock market exuberance and international short-term flows

Wang X., Yan J. (. , Yan C., GÖZGÖR G.

JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS & MONEY, vol.75, 2021 (Journal Indexed in SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 75
  • Publication Date: 2021
  • Doi Number: 10.1016/j.intfin.2021.101417
  • Title of Journal : JOURNAL OF INTERNATIONAL FINANCIAL MARKETS INSTITUTIONS & MONEY
  • Keywords: Global financial crisis, Stock bubbles, Capital flows, Emerging markets, LIQUIDITY SHOCKS EVIDENCE, CAPITAL FLOWS, FINANCIAL CRISIS, GLOBAL BANKS, FLIGHT HOME, TRANSMISSION, BUBBLES, CREDIT, GLOBALIZATION, LINKAGES

Abstract

We investigate bubble-like dynamics in 22 Emerging Market Economies (EMEs). We identify the existence of synchronized stock markets' exuberance across EMEs before the 2000s Global Financial Crisis (GFC). We also investigate whether international short-term capital flows help to predict such episodes of exuberance. We find that all three types of short-term flows are significant, but international equity flows prove the most robust predictor. International capital flows (especially equity flows) partially explain the synchronization of exuberance detected and thus demand close attention when monitoring bubble-like dynamics.