OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
Hide / Show Abstract
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

International Capital Mobility and Financial Fragility - Part 5. Do Investors Disproportionately Shed Assets of Distant Countries Under Increased Uncertainty?

Evidence from the Global Financial Crisis You or your institution have access to this content

Authors:
OECD
Publication Date
12 June 2012
Bibliographic information
No.:
968
Pages
27
DOI
10.1787/5k97fmsjxkd5-en

Hide / Show Abstract

The global crisis of 2008-09 went in hand with sharp fluctuations in capital flows. To some extent, these fluctuations may have been attributable to uncertainty-averse investors indiscriminately selling assets about which they had poor information, including those in geographically distant locations. Using a gravity equation setup, this paper shows that the impact of distance increases with investors’ uncertainty aversion. Consistent with a sudden increase in uncertainty, the negative impact of distance on foreign holdings increased during the global financial crisis of 2008-09. Host-country structural policies enhancing the quality of information available to foreign investors, such as strict disclosure requirements and prudential bank regulation, tended to mitigate withdrawals.
JEL Classification:
  • F21: International Economics / International Factor Movements and International Business / International Investment; Long-Term Capital Movements
  • G11: Financial Economics / General Financial Markets / Portfolio Choice; Investment Decisions
  • G18: Financial Economics / General Financial Markets / Government Policy and Regulation