Premium
Are Foreign Institutional Investors Good for Emerging Markets?
Author(s) -
Frenkel Michael,
Menkhoff Lukas
Publication year - 2004
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2004.00646.x
Subject(s) - emerging markets , capital market , portfolio , liberalization , institutional investor , capital flows , financial market , economics , capital (architecture) , financial system , monetary economics , business , international economics , financial economics , finance , corporate governance , market economy , archaeology , history
Portfolio flows channelled via institutional investors were the most dynamic capital flows to emerging markets in the 1990s. We use an asymmetric information framework to derive five propositions about the effects of the activities of foreign institutional investors on emerging markets. We confront these propositions with existing empirical evidence on the financial sector of emerging markets and conclude that institutional investors do not automatically generate benefits for emerging markets. Therefore, capital account and financial market liberalisation needs to be accompanied by careful regulation.