Study On The Driving Factors,influencing Channels And Prudential Supervision Of Cross-border Capital Flows

With the advancement of the global financial opening and the improvement of financial integration,the impact of cross-border capital flows on the economic development and financial stability of various countries continues to increase.Before and after the 2008 financial crisis,cross-border capital flows experienced the entire extreme operating process of surge,sudden stop,flight,and capital outflow contraction in various countries,which aggravated the contagious effects and damage of the financial crisis,and attracted the attention of regulators in various countries and many scholars.Since the 2008 global financial crisis,the operating mode of cross-border capital flows in various countries,especially emerging economies represented by China,has undergone profound changes,which specifically exhibited important characteristics such as rising scale,increased volatility,and structural changes.The financial supervision system of China and other emerging economies is not yet complete,and the violent fluctuations in cross-border capital flows are likely to have an impact on the smooth operation of the economy and finance of various countries.In this context,it has important theoretical and policy implications to deeply explore the internal and external driving factors and various influence channels of cross-border capital flows,and to further evaluate the effects of various prudential regulatory policies on this basis.The existing research on the driving factors of cross-border capital flows mainly focuses on the framework of “push-pull factors” composed of domestic “pull factors” and global external “pull factors”.In the past two decades,the availability of high-frequency micro-data has continued to increase.The use of micro-level data can help to analyze the impact of cross-border capital flow drivers on micro-market entities and clarify the role of various influencing channels.The relatively high frequency of data can timely reflect the changing characteristics of cross-border capital flows,and give time for policy makers to make timely policy responses.Therefore,from a micro perspective,this article firstly analyzes the country-level risk sentiment of global investors,which is an important “pull factor” of cross-border capital flows,and the uncertainty of U.S.trade policy,which is an important“push factor” of cross-border capital flows.In turn,under the framework of “push-pull factors”,various channels of influence of the Covid-19 on cross-border capital flows in emerging economies are clarified.Finally,this article analyzes the effects of prudential supervision policies implemented by countries in the global capital flow network from a macro perspective.The country-level risk sentiment of global investors directly affects the risk premium level of risky assets in a country that investors need,and affects investors’ cross-border investment decisions.By constructing a general equilibrium intertemporal selection model,this article describes the theoretical mechanism of the negative influence of investors’ country-level risk sentiment on the net cross-border equity capital inflow and the moderating effect of investors’ risk aversion.The article uses country-level risk sentiment index of global investors constructed based on big data text analysis technology and the micro-data from EPFR cross-border equity funds of Emerging Portfolio Fund Research(EPFR)test the impact of investor country-level risk sentiment on cross-border capital flows.The results show that the rise of global investors’ risk sentiment towards a country will push up the country’s risk premium,which in turn will significantly reduce the net capital inflow allocated by global equity funds to the country.From a national perspective,improving a country’s financial market maturity,exchange rate flexibility,capital account control,and political stability can alleviate the negative impact of investor sentiment in a country on cross-border capital flows.From the perspective of funds,the impact is significant mainly on passive funds,institutional investment funds,ETF funds,and open-end funds that have a high degree of risk aversion.When the risk sentiment of global investors is extremely low or the net capital inflow of equity funds in various countries is extremely high,the influence of investors’ country-level risk sentiment is more significant.After the 2008 financial crisis,the impact of global external “pushing factors” on cross-border capital flows has continued to increase.After U.S.President Trump took office,he provoked trade frictions between the U.S.and China,Mexico,Europe and other regions,and aggravated the global economic and financial market turmoil.The global impact of the uncertainty of U.S.trade policy(USTPU)has attracted widespread attention.This article uses micro-data from EPFR cross-border equity funds in 35 emerging economies to empirically examine the impact of the USTPU on cross-border equity capital flows in emerging economies.The results show that the rising USTPU will lead to a decline in the net capital inflows of cross-border equity funds in emerging economies,and this impact is even more pronounced after the 2008 global financial crisis.Affected by country-specific factors,the influence of the USTPU is heterogeneous.The higher the level of foreign exchange risk exposure of a country,the deeper the degree of international financial integration,and the closer direct trade ties with the United States will aggravate the impact of the USTPU.Higher interest rates will help ease the impact of USTPU.From the perspective of global value chains,the rising USTPU has a significant impact on economies that are downstream of R&D-intensive industries,financial and commercial services,and other industries.Channel analysis shows that changes in global investors’ country-level risk sentiment towards emerging economies are an important transmission channel for the impact of USTPU.Further research shows that during the Sino-US trade friction,mainly affected by the USTPU,the tariff increase event will significantly reduce the net capital inflow of cross-border equity funds in emerging economies.In 2020,the Covid-19 has spread rapidly around the world.The outbreak of this major public health emergency has caused drastic fluctuations in the financial markets and cross-border capital flows of emerging economies.In this context,analyzing the effects of the various channels and policy tools that the Covid-19 has on cross-border capital flows is essential for emerging economies to prevent violent fluctuations in cross-border capital flows and maintain financial stability.Based on the empirical analysis of micro-data from EPFR cross-border equity funds,this article finds that the growth of domestic Covid-19 cases in emerging economies will reduce the level of net capital inflows of cross-border equity funds.Further channel analysis shows that in the domestic driving channel,the Covid-19 has reduced the net inflow of cross-border stocks in emerging economies by increasing investors’ risk sentiment towards emerging economies;in the external channels of infection,The rising level of external epidemic risk exposure in the export destination countries of emerging economies,import source countries and equity holders will intensify the impact of the Covid-19 on the cross-border equity capital inflow in their own countries;At the global factor level,the outbreak of the Covid-19 in the United States,the increase in global risk sentiment and the rising volatility of the equity market in United States will further inhibit the cross-border equity capital inflow in emerging economies.The impact of the Covid-19 is heterogeneous due to the economic characteristics and fund characteristics of various countries.Facing the impact of the Covid-19,the use of loose monetary policies in emerging economies and the strengthening of economic support to various social and economic sectors can effectively alleviate the impact of the Covid-19.This article analyzes the important driving factors and various influence channels of cross-border capital flow from a micro perspective.On this basis,this article analyzes the impact of US monetary policy on the global bank capital flow network and the effect of prudential supervision policies from a macro perspective.This paper uses the local banks statistical macro data of the Bank for International Settlements(BIS)to construct the global bank capital flow network from 2000 to 2020,calculate the network-level and country-level characteristic indicators,and analyze the dynamic evolution of the relevance characteristics of the global bank capital flow network.This article also research the effects of various prudential regulatory policies at the country level under the influence of the US monetary policy in empiric.It turns out that the implementation of loose monetary policy in the United States will stimulate the increase in cross-border bank capital flows in various countries.Countries that implement macroprudential policies for counter-cyclical adjustments can effectively reduce the impact of U.S.monetary policy;similarly,implementing capital control policies when necessary can reduce the impact of U.S.monetary policy.Further research found that after excluding the United States from the global bank capital flow network,the U.S.monetary policy will still affect cross-border bank capital flows between countries.U.S.monetary policy has a global spillover effect.At this time,countries can still use prudential supervision policies efficiently.The analysis of heterogeneity found that the higher the degree of international financial integration of a country,the higher the level of financial development,the greater the flexibility of exchange rate arrangements,and the higher the quality of the rule of law,will alleviate the impact of US monetary policy.Finally,this paper finds that the use of macro-prudential policies mainly aimed at the banking sector causes the cross-sectoral spillover effect of increased cross-border bond capital inflows,which further enriches the research on the effects of macro-prudential policies.Therefore,in the process of financial opening,policy makers should fully predict the hidden dangers of financial globalization and identify the sources of risks,and pay particular attention to important cross-border risks such as global investor country-level risk sentiment and the USTPU and other driving factors of capital flow.it’s also important to clarify the various influence channels of cross-border capital flows.In addition,emerging economies should actively build mature financial markets and create a sound financial environment and a legal environment,maintain the stability of the exchange rate and reduce the risk of exchange rate fluctuations.They should also pay attention to the risk of capital flow fluctuations in the process of capital account opening,and steadily advance the pace of financial globalization.Finally,policy makers must establish and improve macro-control mechanisms,comprehensively utilize various prudential regulatory policies,and respond to and resolve financial risks brought about by cross-border capital flows.