Template-type: ReDIF-Paper 1.0
Author-Name: Kenza Benhima
Author-Name-First: Kenza
Author-Name-Last: Benhima
Author-Person: pbe435
Author-Name: Dr. Rachel Cordonier
Author-Name-First: Rachel
Author-Name-Last: Cordonier
Author-Person:  pco943
Title: News, sentiment and capital flows
Abstract: We examine empirically the effect of two types of expectations-related shocks - "news" (increases in expected future productivity) and "sentiment" (surges in optimism unrelated to future productivity) - on gross capital flows. We find that news shocks lead to a decrease in both gross capital inflows and outflows, while sentiment shocks lead to an increase in both gross inflows and outflows. Both these shocks drive a positive correlation between gross inflows and outflows but only sentiments shocks generate procyclical gross flows. These effects are not driven by global shocks or financial shocks. They are consistent with the existence of asymmetric information between domestic and foreign investors about the country's fundamentals.
Length: 51 pages
Creation-Date: 2020
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2020/working_paper_2020_04
File-Format: text/html
Number: 2020-04
Classification-JEL: D82, E32, F32
Keywords: Capital flows, SVAR, asymmetric information
Handle: RePEc:snb:snbwpa:2020-04