Determinants of Foreign Portfolio Investments in Emerging Markets

This study aims at revisiting the determinants of foreign portfolio investments in emerging market economies by using the latest data released by the Institute of International Finance, which includes portfolio movements during both the COVID-19 pandemic and the Russia-Ukraine war. Pooled OLS and Fixed Effects regressions were run on 12 EMEs for the period 2005-2022 inspecting several push and pull factors. Variance decomposition analyses have also been conducted on each country in the sample individually. The results show that FPI are mostly driven by global “push” factors which is in line with past literature. Among the notable factors, global risk aversion, external equity returns and external interest rates had the most consistent statistical significance among all types of flows. Variance decomposition however has revealed that the importance of various push and pull factors in explaining FPI movement can vary significantly by geographical region.