Does Global Investor Sentiment Encourage Capital Inflows? : Evidence from Korea

This paper examines the effect of global investor sentiment on capital inflows in the Korean stock and bond markets. First, we conclude that global investor sentiment about Korea causes capital inflows to the Korean stock market to fluctuate. Second, we find that global investor sentiment about Korea causes foreign investors to modify their investments but not enough to induce rapid changes in capital inflows. Third, we show that positive sentiment about other Asia-Pacific countries causes foreign investors to invest more in Korean stock and bond markets. The results suggest that studies of global investor sentiment provide insight into determinants for international capital flows and have implications for capital flow management policies