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International fund flows and Asian stock markets

This study examines the influences of international fund flows on the stock market indexes in six East Asian countries. I control for effects from domestic macroeconomic variables, exchange rates and interest rates, and the foreign variables, considering both concurrent and lagged terms. The results indicate that the foreign portfolio investment (FPI) and the lagged market index have significant impacts on the market indexes in these countries when controlling for domestic variables or none. However, when controlling for the foreign variables or for both domestic and foreign variables, the FPI effects become weaker or insignificant. The results suggest that the FPI has positive effects on market indexes; however, the FPI is likely correlated with and dominated by foreign variables.