DO HERDING BEHAVIOR AND POSITIVE FEEDBACK EFFECTS INFLUENCE CAPITAL INFLOWS? EVIDENCE FROM ASIA AND LATIN AMERICA

A considerable amount of research has focused on herding behavior vis-à-vis international capital, either by focusing on theory or by applying simple statistical analyses, but most studies have ignored factors that trigger international capital inflows. In essence, any connection between theory and empirical evidence has not been validated. In this paper, we test two primary drivers of capital inflows to emerging markets, namely herding behavior and positive feedback effects. Data from Asia and Latin America are used for our empirical study. There is significant evidence of positive feedback and herding behavior in both stable and highly volatile countries.