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What drives portfolio investments of German banks in emerging capital markets?

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Abstract

After decades of steady liberalization and financial market development, emerging capital markets experienced unparalleled capital inflows in the aftermath of the emerging markets crisis of the 1990s. This paper studies portfolio investment decisions of German banks in emerging capital markets from 2002 to 2007. The use of a dynamic time-series cross-section framework and the micro database External Position Report provided by Deutsche Bundesbank permit insights into the various determinants of portfolio investments in ECMs. For example, there is evidence that German banks take into account the various dimensions of financial market development in their portfolio investment decisions and anticipate the special risks inherent in emerging markets. Proxies for the overall development and efficiency of capital markets have the highest economic significance of all variables. The introduction of depositary receipts programs has a positive impact on stock market investment. Moreover, there is evidence that global risk aversion exerts a significant influence in times of financial turmoil.

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  1. University of Potsdam, August-Bebel-Straße 89, 14482, Potsdam, Germany

    Christian Wildmann

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  1. Christian Wildmann
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Correspondence to Christian Wildmann.

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Wildmann, C. What drives portfolio investments of German banks in emerging capital markets?. Financ Mark Portf Manag 25, 197–231 (2011). https://doi.org/10.1007/s11408-011-0158-x

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