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Extreme Capital Flows and Risk Linkages in Emerging Market Financial Submarkets

Yang Chen et al.

International Finance2026https://doi.org/10.1111/infi.70025article
ABDC B
Weight
0.50

Abstract

This paper examines the drivers and impacts of extreme capital flow events in emerging markets, with a focus on distinguishing among flow types (portfolio, bank and FDI) and event categories (surge vs. stop). We find that the global financial cycle drives extreme events in portfolio and bank flows, while FDI is more sensitive to domestic factors. Notably, sudden stops in cross‐border capital flows, particularly in bank and FDI flows, have a greater impact on the overall risk interconnectedness of domestic financial submarkets compared to surge events. We also identify the transmission channels: extreme bank flow events increase credit market net risk spillovers, while concurrent extreme capital flow events heighten foreign exchange market net risk spillovers. Further discussion shows that foreign exchange sales and macroprudential policies mitigate the adverse effects of negative global financial cycle shocks, with macroprudential measures demonstrating stronger effectiveness in the medium term.

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https://doi.org/https://doi.org/10.1111/infi.70025

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@article{yang2026,
  title        = {{Extreme Capital Flows and Risk Linkages in Emerging Market Financial Submarkets}},
  author       = {Yang Chen et al.},
  journal      = {International Finance},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1111/infi.70025},
}

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Extreme Capital Flows and Risk Linkages in Emerging Market Financial Submarkets

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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