Do foreign investors insulate firms from local shocks? Evidence from the response of investable firms to monetary policy
AuthorFrancis, BB; Hunter, DM; Kelly, PJ
Source TitleJournal of Empirical Finance
University of Melbourne Author/sKelly, Patrick
Document TypeJournal Article
CitationsFrancis, B. B., Hunter, D. M. & Kelly, P. J. (2020). Do foreign investors insulate firms from local shocks? Evidence from the response of investable firms to monetary policy. Journal of Empirical Finance, 58, pp.386-411. https://doi.org/10.1016/j.jempfin.2020.07.003.
Access StatusThis item is embargoed and will be available on 2022-09-01
Extant research shows that stock returns of investable firms are highly sensitive to foreign market and global information shocks, suggesting that having foreign investors might insulate investable firms from shocks to local fundamentals. Examining 24 emerging markets, we find that both investable and non-investable firms are sensitive to local monetary policy shocks. This allays the concern that emerging-market opening reduces the efficacy of local monetary policy. We also find that in 11 countries (46% of our country-sample), investable firms are more sensitive to local shocks than non-investable firms. Differences in leverage, stock liquidity, size, domestic product-market exposure, or industry cyclicality do not drive this finding.
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