Impact of central bank independence and transparency on international equity portfolio allocation: A cross-country analysis

Kwabi, Frank O.; Boateng, Agyenim; Du, Min

Abstract

In this study, we analyse the effects of central bank independence (CBI) and central bank transparency (CBT) and their interactions with institutional quality on foreign equity portfolio inflows. Employing a dataset from 42 countries over the period from 2001 to 2014, we find strong evidence that independent and transparent central bank has a positive and significant influence on foreign equity investment inflows. Further analysis shows that institutional quality interacts with central bank independence and transparency in attracting foreign equity portfolio. Our results are robust to alternative specifications, endogeneity concerns and that economic policy uncertainty increases asymmetric information and deters foreign equity portfolio investment inflows.

Citation

Kwabi, F. O., Boateng, A., & Du, M. (2020). Impact of central bank independence and transparency on international equity portfolio allocation: A cross-country analysis. International Review of Financial Analysis, 69, https://doi.org/10.1016/j.irfa.2020.101464

• Journal Article Type: Article
• Acceptance Date: Feb 24, 2020
• Online Publication Date: Feb 27, 2020
• Publication Date: 2020-05
• Deposit Date: Dec 10, 2021
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 69
• Article Number: 101464
• DOI: https://doi.org/10.1016/j.irfa.2020.101464
• Keywords: Central bank independence, Central bank transparency, Economic policy uncertainty, Foreign equity portfolio flow, Institutional quality
• Public URL: http://researchrepository.napier.ac.uk/Output/2828588