What Drives Gross Flows in Equity and Investment Fund Shares in Luxembourg ?

The paper from BCL analyses gross investment flows in equity and investment fund shares (EIFS) in Luxembourg - a small open economy with a financial center - over the period 2002Q1-2016Q3. The paper carries out three analyses. The statistical analysis shows that gross EIFS flows exhibit similar patterns over time amongst resident investors and non-resident investors. However, the volatility of EIFS flows instigated by non-resident investors is larger than the volatility of EIFS flows initiated by resident investors. The graphical analysis shows that gross EIFS flows switch between positive and negative growth cycle periods whose durations vary over time depending on shocks affecting the return/risk ratio associated to EIFS. The econometric analysis supports these results as it provides evidence of a significant relationship between EIFS flows, global stock prices, global risk aversion, global economic policy uncertainty measures and fundamentals that may have played an important role in shaping the evolution of EIFS flows over the period of analysis (in particular, global liquidity, global government spending, global interest rates and oil prices).