Evaluation of Hot Money Drivers in China: A Structural VAR Approach
This paper investigates the drivers of hot money in China. It develops a model based on expectation-variance utility theory in the theoretical analysis section. The model considers a foreign investor who faces the question of how to distribute his wealth between foreign and domestic assets. The mode...
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| Format: | Article |
| Language: | English |
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Wiley
2022-01-01
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| Series: | Complexity |
| Online Access: | http://dx.doi.org/10.1155/2022/1066096 |
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| author | Weigang Hu Yan Zhou Jun Liu |
| author_facet | Weigang Hu Yan Zhou Jun Liu |
| author_sort | Weigang Hu |
| collection | DOAJ |
| description | This paper investigates the drivers of hot money in China. It develops a model based on expectation-variance utility theory in the theoretical analysis section. The model considers a foreign investor who faces the question of how to distribute his wealth between foreign and domestic assets. The model’s analysis suggests that economic variations, such as expected domestic currency appreciation, rise in domestic asset return, drop in foreign asset return, domestic economic growth, decrease in domestic inflation, and rise in foreign asset risk will cause foreign investors to distribute more wealth in domestic assets. Therefore, hot money flows in, and vice versa. In the empirical analysis section, the paper estimates structural VAR models using data from 2000 to 2019 in China. The impulse response functions are consistent with the theoretical predictions: when there is a positive domestic inflation shock, hot money outflows increase (inflows decline) in the current period, but the response is not significant. When there is a positive domestic growth rate shock or positive domestic asset return rate shock, hot money inflows increase (outflows decline) in the current period, and the response reaches its peak in the next period. Furthermore, when there is a positive expected exchange rate shock, hot money outflows increase (inflows decline) in the current period. Of these drivers, the expected exchange rate has the largest impact on hot money, and the domestic growth rate has the most enduring effect. |
| format | Article |
| id | doaj-art-3d56de14b0a247d1a7096b51a96f207d |
| institution | Kabale University |
| issn | 1099-0526 |
| language | English |
| publishDate | 2022-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Complexity |
| spelling | doaj-art-3d56de14b0a247d1a7096b51a96f207d2025-02-03T06:12:24ZengWileyComplexity1099-05262022-01-01202210.1155/2022/1066096Evaluation of Hot Money Drivers in China: A Structural VAR ApproachWeigang Hu0Yan Zhou1Jun Liu2Institute of World EconomyEndicott College of International StudiesSchool of FinanceThis paper investigates the drivers of hot money in China. It develops a model based on expectation-variance utility theory in the theoretical analysis section. The model considers a foreign investor who faces the question of how to distribute his wealth between foreign and domestic assets. The model’s analysis suggests that economic variations, such as expected domestic currency appreciation, rise in domestic asset return, drop in foreign asset return, domestic economic growth, decrease in domestic inflation, and rise in foreign asset risk will cause foreign investors to distribute more wealth in domestic assets. Therefore, hot money flows in, and vice versa. In the empirical analysis section, the paper estimates structural VAR models using data from 2000 to 2019 in China. The impulse response functions are consistent with the theoretical predictions: when there is a positive domestic inflation shock, hot money outflows increase (inflows decline) in the current period, but the response is not significant. When there is a positive domestic growth rate shock or positive domestic asset return rate shock, hot money inflows increase (outflows decline) in the current period, and the response reaches its peak in the next period. Furthermore, when there is a positive expected exchange rate shock, hot money outflows increase (inflows decline) in the current period. Of these drivers, the expected exchange rate has the largest impact on hot money, and the domestic growth rate has the most enduring effect.http://dx.doi.org/10.1155/2022/1066096 |
| spellingShingle | Weigang Hu Yan Zhou Jun Liu Evaluation of Hot Money Drivers in China: A Structural VAR Approach Complexity |
| title | Evaluation of Hot Money Drivers in China: A Structural VAR Approach |
| title_full | Evaluation of Hot Money Drivers in China: A Structural VAR Approach |
| title_fullStr | Evaluation of Hot Money Drivers in China: A Structural VAR Approach |
| title_full_unstemmed | Evaluation of Hot Money Drivers in China: A Structural VAR Approach |
| title_short | Evaluation of Hot Money Drivers in China: A Structural VAR Approach |
| title_sort | evaluation of hot money drivers in china a structural var approach |
| url | http://dx.doi.org/10.1155/2022/1066096 |
| work_keys_str_mv | AT weiganghu evaluationofhotmoneydriversinchinaastructuralvarapproach AT yanzhou evaluationofhotmoneydriversinchinaastructuralvarapproach AT junliu evaluationofhotmoneydriversinchinaastructuralvarapproach |