Abstract
This paper investigates the impacts of uncertainty on international portfolio allocation decisions and returns across 27 countries. Using panel structural vector autoregressive analysis, a positive link between both country-level and global uncertainty with equity fund flows is uncovered, highlighting the role of investor sentiment in capital allocation decisions. Findings also support the portfolio rebalancing theory, revealing the negative influence of past returns on fund flows. Results show that the VIX demonstrates a positive association with fund flows, particularly during periods of elevated global uncertainty. Moreover, this research analyzes differences between developed and emerging markets in their sensitivity to uncertainty shocks.
•Findings support the portfolio rebalancing theory, revealing the negative influence of past returns on equity fund flows.•Positive link between both country-level and global uncertainty and equity fund flows.•VIX has a pivotal role in reducing portfolio rebalancing during periods of elevated global uncertainty.•Emerging economies exhibit a greater susceptibility to idiosyncratic shocks.
