What Makes Hot Money Hot? The Relative Volatility of International Flows of Debt and Equity Capital
- 1 December 1999
- journal article
- Published by World Scientific Pub Co Pte Ltd in Review of Pacific Basin Financial Markets and Policies
- Vol. 2 (4) , 427-451
- https://doi.org/10.1142/s0219091599000230
Abstract
This paper is concerned with the relative volatility of international flows of debt and equity capital. It is shown that if foreign investors are less well informed about the domestic economy than domestic investors, then international flows of debt capital will be more volatile than flows of equity capital in the sense that the proportional change of foreign bondholdings in an economy in response to a change in that economy's economic prospects will be greater than the proportional change in foreign stockholdings. This is shown to be consistent with the behavior of international flows of debt and equity capital during the Asian crisis.Keywords
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