Fund flow shocks and financial vulnerability: Global, domestic, and behavioral perspectives

Document Type

Article

Source of Publication

Review of Financial Economics

Publication Date

10-1-2026

Abstract

This paper examines the determinants and dynamics of sudden stops in international fund flows, distinguishing between conventional and socially responsible investment (SRI) funds. Using a comprehensive dataset covering 41 countries from 1998 to 2025, the study investigates how global, domestic, contagion, and cultural factors jointly shape financial vulnerability. The results show that global liquidity conditions, particularly the TED spread, are dominant drivers of stops, whereas robust domestic fundamentals, including GDP growth, equity market performance, and interest rate conditions, partially mitigate reversal risk. Contagion effects reveal that regional investor herding amplifies stop probabilities across both fund types and is notably stronger for SRI flows than for conventional flows, challenging the view that value-driven investors unconditionally stabilize capital markets during stress periods. National cultural dimensions significantly influence conventional fund vulnerability: power distance, individualism, and uncertainty avoidance increase stop probability through institutional opacity, autonomous rebalancing, and home-bias withdrawal mechanisms, whereas masculinity reduces vulnerability through performance-oriented institutional structures. In contrast, cultural effects are largely absent in advanced economy SRI funds, suggesting that Environment, Social, and Governance (ESG) mandates weaken culturally driven transmission channels in cross-border capital allocation. Overall, the findings suggest that sudden stop vulnerability reflects not only exposure to global financial shocks but also to the interaction between investor mandates and culturally embedded behavioral responses.

ISSN

1058-3300

Publisher

Wiley

Volume

44

Issue

4

Disciplines

Business

Keywords

behavioral finance, cultural dimensions, financial vulnerability, fund flows, global/domestic factors, socially responsible investment, sudden stops

Scopus ID

105049641801

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Bronze: This publication is openly available on the publisher’s website but without an open license

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