THE NEW WAY IS THE INVESTOR BEHAVIOUR WAY

...financial market characteristics, such as liquidity in the recipient country and composition of the foreign investor bases, rather than macroeconomic or institutional fundamentals, most robustly explain countries’ sensitivities...

...after controlling for all these characteristics, we find a strong and consistent role for the composition of the foreign investor base...

...Overall, our findings suggest that EMs with deep financial markets and a high exposure to “fickle investors,” rather than those with more sound institutional or macroeconomic fundamentals, should expect to receive (or lose) external funding when financial conditions in advanced countries improve (or deteriorate)...
Cerutti, Eugenio, Stijn Claessens, and Damien Puy, 2015, "Push Factors and Capital Flows to Emerging markets: Why Knowing Your Lender Matters More Than Fundamentals", IMF Working Paper 2015/127

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