Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305579 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11337
Publisher: 
CESifo GmbH, Munich
Abstract: 
This paper analyses the short- and long-term effects of geopolitical uncertainty on cross-border portfolio flows between the US and 41 developed and emerging economies over the period January 1992-November 2022. We find that geopolitical uncertainty decreases equity inflows from other countries into the US in both the short- and long-term, with this flight home effect generally peaking after 6 months. We investigate the underlying mechanisms and show that the erosion of net financial worth, the evaporation of liquidity and rising risk premia are the key channels through which geopolitical uncertainty affects these inflows, supporting theoretical capital flow models with portfolio choice that feature information and related frictions. By contrast, the responses of other types of flows to geopolitical uncertainty are generally weak and are only found when accounting for the role of some cross-sectional heterogeneity and its time variation.
Subjects: 
cross-border portfolio flows
equity and bond inflows and outflows
geopolitical risk
push and pull factors
local projections
risk premia
JEL: 
F32
F36
F41
Document Type: 
Working Paper
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