Domestic Market Determinants of Foreign Portfolio Flows to an Emerging Market: A Study of Saudi Capital Market

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Lakshmi Kalyanaraman


This study examines the domestic market determinants of portfolio flows from foreign institutional investors in Saudi stock market. Monthly data relating to domestic market size, re-turn, volatility liquidity and proportion of free float shares for the period, March 2017 to September 2023 is analysed. Granger causality shows that foreign portfolio flows cause domestic market return in Saudi Arabia and the reverse causality is absent. Multivariate time series regression analysis is employed to finds that market size as measured by market capitalization and domestic market return volatility are the covariates of foreign portfolio flows. Results of the study have important implications for the regulators of emerging markets to decide what factors to focus on in policymaking to attract foreign portfolio flows.

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