This paper examines the relationship of net foreign portfolio investment inflows, namely corporate bonds and stocks, to two pull factors; investor risk aversion and the US stock market. Using a vector autoregressive model, we find that positive shocks to the stock market elicit an insignificant response to the net corporate bond inflow and a significant short term positive response to the net corporate stock inflow. The net corporate stock inflow does not respond to risk aversion, while bond inflows do exhibit a significant midterm response to an increase in risk aversion. Consistent with previous empirical findings, the results show that internal country-specific factors may influence foreign portfolio inflows.
Peter Egly, David Johnk, and Daniel Liston. Foreign Portfolio Investment Inflows to the United States: The Impact of Investor Risk Aversion and U.S. Stock Market Performance. North American Journal of Finance and Banking Research. 4, no. 4 (2010): 25–41
North American Journal of Finance and Banking Research