Capital Flows in Risky Times: Risk-on/Risk-off and Emerging Market Tail Risk

This paper characterizes the implications of risk-on/risk-off shocks for emerging market capital flows and returns. We document that these shocks have important implications not only for the median of emerging markets flows and returns but also for the left tail. Further, while there are some differ...

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Bibliographic Details
Published inNBER Working Paper Series
Main Authors Chari, Anusha, Karlye Dilts Stedman, Lundblad, Christian
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.10.2020
Subjects
Coronaviruses
COVID-19
Currency
Disease transmission
Economic theory
Emerging markets
Equity
Equity funds
Global funds
International finance
Portfolio investments
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Summary:This paper characterizes the implications of risk-on/risk-off shocks for emerging market capital flows and returns. We document that these shocks have important implications not only for the median of emerging markets flows and returns but also for the left tail. Further, while there are some differences in the effects across bond vs. equity markets and flows vs. asset returns, the effects associated with the worst realizations are generally larger than that on the median realization. We apply our methodology to the COVID-19 shock to examine the pattern of flow and return realizations: the sizable risk-off nature of this shock engenders reactions that reside deep in the left tail of most relevant emerging market quantities.
ISSN:0898-2937
DOI:10.3386/w27927