fococlipping-20220104-191657

PUBLIKASI

Decoding Global Portfolio Investment Flow Post-COVID19 Pandemic: Does Market Efficiency Matter?

  • In this paper, we try to uncover the pattern of global portfolio investment flow after the COVID-19 pandemic. Particularly, we are interested to see whether or not the majority of portfolio investments go to inefficient markets during this period.
  • Based on the Efficient Market Hypothesis (EMH) by Fama (1970), investors should go to weak-form (inefficient) market to search for higher return, a common behavior after a period of market instability.
  • We construct our measure of market efficiency by taking the absolute difference between standardized GDP growth (QoQ %) and standardized stock index return, where larger value means less market efficiency. We then regress this variable to standardized net portfolio inflows in five different periods (spanning from 1991Q1 to 2024Q1) to see whether or not larger deviation leads to larger inflows in each period.
  • Further, we divide our sample of countries into efficient markets (those with average deviation in the entire timeframe of less than 50th percentile) and inefficient markets (vice versa). We conduct a t-test analysis based on this categorical variable to see whether or not the average net portfolio inflows of the two groups are statistically different in each of the five-time period.
  • Results constructed by us indicates the preference of global investors. During stable periods, investors tend to prefer efficient markets incorporating all available information into asset prices. In times after a crisis (post 2008 financial crisis and post COVID-19), investors shift the capital towards inefficient markets. This behavior shifting is motivated by higher returns to compensate the loss during crisis.
  • The shifting of portfolio investment flow is associated with the condition of market and the condition of information distribution which create opportunity. By moving to inefficient market, investors leverage the inefficiencies to prioritize higher gains.
  • Inefficient markets should create sufficient ecosystem, especially during post-crisis period to attract more investments.
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17 July 2024

Decoding Global Portfolio Investment Flow Post-COVID19 Pandemic: Does Market Efficiency Matter?

Penulis :

Reza Yamora Siregar, Ibrahim Khoilul Rohman, Afif Narawangsa Luviyanto, Fadli Jihad Dahana Setiawan