Chandra Thapa

Investor Protection and Foreign Equity Portfolio Investments

We examine whether greater investor protection leads to greater portfolio investments by utilizing different forms of investor protection measures and bilateral foreign equity portfolio investment data across 37 developed and developing markets. After controlling for a host of confounding factors, we find strong evidence that countries with better investment profile, quality of institutions, and a track record of law enforcement appear to attract higher levels of foreign portfolio investments

The impact of foreign equity investment flows on global linkages of the Asian emerging equity markets

Evidence of the impact of foreign equity investment flows on the global linkages of the Asian emerging equity markets is provided. Findings confirm that there is a general trend towards greater integration and this process appears to be influenced by the increasing volumes of foreign equity portfolio investment flows. The results support the widely-held view that foreign investors are return chasers and their trading behaviour is based on information drawn from recent returns available in the emerging markets. The results also confirm the price-pressure hypothesis which suggests that foreign equity investors are mainly responsible for the increases in the stock market valuations in the Asian emerging markets. In view of the findings, the Asian emerging markets may become more vulnerable to the changes in foreign investment flows and turn more volatile in future.

Foreign Investors and Global Integration of Emerging Indian Equity Market

This article examines the influence of foreign investors in explaining short-run dynamics and long-run relationship of the emerging Indian equity market with global equity markets. Using daily return series and equity portfolio investments made by foreign institutional investors, we conclude that the rapid growth in the flow of foreign equity portfolio investments is leading to greater integration of the Indian equity market with global markets. With the increased global integration, the Indian market will become more susceptible to global shocks as has been witnessed by significant losses suffered by investors in the Indian market following the sub-prime crisis.

Foreign bias in bond portfolio investments: the role of economic and non-economic factors and the impact of the global financial and sovereign debt crises

ABSTRACT In this study we examine whether theoretically inconsistent foreign bond allocations are associated with economic fundamentals and/or non-economic behavioural factors. Using panel data for 54 developed and emerging markets spanning a temporal period of 12 years, the results show that non-economic factors, that is, familiarity with foreign markets and behavioural characteristics of source markets, are the stronger drivers of biases in foreign bond allocations. Further, using the recent 2009–2011 European sovereign debt crisis as an experimental set-up, we find that investors reduce their foreign bond allocations during the debt crisis, with the withdrawals being more severe from the most affected countries. We also find that the relevance of familiarity with foreign markets becomes more pronounced during the European debt crisis. However, in case of the recent 2007–2009 global financial crisis, we find no evidence of change in foreign bias by international bond investors.

Corporate Governance and Foreign Ownership: The Impact of Stricter Regulatory Sanctions

We examine whether stricter non-compliance sanctions on corporate governance regulations influence the investment decisions of foreign portfolio investors in emerging markets. To answer this question we use a natural experiment provided by a corporate governance regulatory reform introduced in 2000 for which stricter sanctions for non-compliance were imposed in 2004. Using firm-level panel data from 2001 to 2007, our results provide strong evidence that reforms that include stricter sanctions for non-compliance lead to higher foreign ownership. Depending on specifications, the difference-in-differences estimates show that, on average, the effect is 3% to 5% increased foreign ownership post regulatory reform of 2004.