ABSTRACT
This paper provides an analysis of the impact of international portfolio flows on security returns. It concludes that opening a country to portfolio flows decreases its cost of capital without adverse effects on its securities markets. There is no convincing evidence that portfolio flows increase the volatility of equity returns or lead to excessive comovement of a country's equity returns with world equity returns. Though there has been much concern that portfolio flows create contagion effects, existing empirical evidence does not provide conclusive evidence that contagion due to uninformed investors is economically important.

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