A Study on How International Portfolio Investment Flows Affect Macrofinancial Risks and Control Channels

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Introduction
In the context of the current COVID-19 pandemic and the Russia-Ukraine confict, recessionary expectations of "high infation" and "weak growth" in the United States, Europe, and other advanced economies have continued to rise, and global economic activities have been severely impacted [1].Advanced economies, represented by the United States, implemented quantitative easing and fscal stimulus policies to stabilize fnancial markets and protect economic development in response to the resulting economic recession.As high infation continued to rise under the policy mix, the Federal Reserve began to reduce infation by signifcantly increasing interest rates and tightening liquidity.Emerging economies have historically risen with the wave of industrialization through industrial transfer, aided by ample international capital liquidity.However, the Fed's persistent policy of increasing interest rates has resulted in a stronger US dollar and depreciating currencies in emerging economies [2].When expectations of a decline in the short-term exchange rate rise, the willingness of cross-border capital to invest weakens further, and there is a sudden halt in capital infows or even capital fight, resulting in a cascade of asset price declines.Under the negative feedback spiral, the wealth of the household sector decreases signifcantly, corporate solvency declines, and the bank nonperforming loan ratio rises, resulting in heightened instability in the real economy and fnancial markets.Te current complex and volatile international economic environment increases the frequency and unpredictability of cross-border capital fows, which will cause signifcant volatility on the fnancial markets of emerging economies [3].
International capital contributes signifcantly to the growth of emerging economies, but it is also extremely vulnerable to macrofnancial instability.In every fnancial crisis, we can see unusual global capital fuctuations.Emerging economies' fnancial systems are fawed and have insufcient defenses against shocks from global capital fows.Emerging economies are additionally more susceptible to external capital shocks due to internal factors like a high external debt ratio and a mismatch in debt maturities [4].Considering the current complex global economic context, to investigate how cross-border capital fows afect macroeconomic stability in emerging economies, this paper selects highly speculative international portfolio investment fows as the research object, discusses the efect of international portfolio fows on macrofnancial risk in emerging economies, and further explores how to efectively manage such risk.By revealing the evolution of macrofnancial risks under external shocks and the efcient control tools for identifying the risks of capital fows, it is of great theoretical signifcance and practical value for emerging economies to identify, manage, and prevent the impact of global capital shocks.
Since the 2008 global fnancial crisis, a growing number of academics have recognized that macrofnancial correlation plays a crucial role in the transmission of external shocks and crisis mechanisms.External shocks produce macrofnancial system instability, which is then communicated to the current economy.Due to trade and investment, many sectors of the economy are interconnected, and risks are transmitted and exacerbated through these sectors, culminating in a global fnancial crisis [5][6][7].Te fnancial development of emerging economies is inadequate and imperfect compared to that of advanced economies.When international capital fows grow more volatile, emerging economies are frequently less able to adapt than advanced economies.Speculative capital, such as international portfolio investment with its substantial crossborder capital fows, is typically accompanied by a considerable amount of uncertainty and can even precipitate extreme capital fow situations.Extremes are frequently followed or precipitated by severe fnancial crises, which have a negative impact on national economic development.Even though cross-border capital fows have been more of a "ripple" than a "wave" during the global fnancial crisis of 2007-2009, the risk associated with the "ripple" is of greater concern.Te risk involved in cross-border capital fows is a signifcant cause for concern [8].
Does the growth of emerging economies face any risks from the international capital fow?Early studies proposed that large international capital fows can cause asset price bubbles, which in turn can cause the Asian fnancial crisis [9] and that large international capital movements can cause risk transmission.International capital infows have the potential to lead to an increase in domestic credit, and this erratic domestic credit expansion is what ultimately leads to crises in emerging economies.Numerous academics have suggested that capital fow is associated with fnancial crises and even questioned how well capital fow performs economically when conditions are calm [10,11].Emerging countries are susceptible to boom-and-bust risks from capital movements [12].Short-term capital fows are a signifcant source of systemic fnancial risk among those [13].
Researchers have examined how the mix of international capital afects the returns and volatility of the stock markets in emerging nations, and they have made the case that these markets are sensitive to the fow of foreign capital [14].Others think that emerging nations with signifcant exposure to the debt securities market are more susceptible to macroeconomic risk from negative shocks [15].Additionally, by contrasting the traits of several forms of international capital in a previous study, some academics contend that foreign portfolio investment is the riskiest form of capital due to the wide range of its fows and stocks [16].Tis essay aims to shed some light on the long-term and short-term efects that capital fows from overseas portfolio investments have on the macrofnancial risk of emerging economies.
International capital investment is advantageous to national economic development, and it serves as a signifcant source of inspiration for emerging economies in particular [17][18][19].International capital fows, however, may also pose a risk to the stability of the fnancial system [20,21].Ten, what are the best ways to properly control potential risks in international capital fows?In the literature, it has primarily been studied from the perspectives of capital control and foreign exchange reserves.Following the Asian fnancial crisis, emerging economies expanded their foreign exchange reserves signifcantly to prepare for any national capital shocks.Capital shocks have a smaller impact on economies with strong macroeconomic fundamentals and modest foreign exchange reserves.Te opposite is also true: economies with weak macroeconomic fundamentals and limited foreign exchange reserves are more vulnerable to capital shocks [22].Terefore, a lot of academics think that having large foreign exchange reserves can make up for weak economic fundamentals and successfully handle international capital shocks [23].According to some academics, foreign exchange reserves can, however, only partially withstand international capital shocks [24][25][26].Especially during times of fnancial stress on the international stage, foreign exchange reserves act as a bufer, playing the role of a stabilizer against international capital movements [27].
Prior to the 2008 fnancial crisis, neoliberal economic theory advocated less regulation of international capital fows.Academics, however, have increasingly asserted that the management of international capital fows should be enhanced following the fnancial crisis.Macroeconomic stability can be improved, and emerging economies can better withstand international capital shocks with capital control [28].According to some academics, capital controls are more efective in high-income nations than in low-or middle-income ones [29].Some academics disagree, contending that emerging economies are more afected by capital restrictions than rich nations [30].Te importance of capital control measures in preserving monetary policy 2 Discrete Dynamics in Nature and Society independence and exchange rate stability is widely acknowledged by academics [31,32].However, the efectiveness of asset control varies depending on the situation, with capital controls being efective for debt infows when the economy is doing well and for reducing debt infows and direct investment fow when the economy is doing poorly [33].According to the results of previous studies, it is impossible to determine whether foreign exchange reserves and capital controls are useful in reducing the macrofnancial risk associated with international portfolio investments in emerging economies.Tis study further examines how to manage the macrofnancial risk of international portfolio investment fows from the perspective of foreign currency reserves and capital controls after researching the efects of macrofnancial risk on international portfolio investment fows in emerging economies.
Te following are the primary contributions to this paper: frst, the study combines the contingent claims analysis with the entropy-based TOPSIS method to quantify the macrofnancial risk in emerging economies.Tis paper not only measures the default risk of the corporate sector, fnancial sector, government sector, and household sector in emerging economies using the contingent claims analysis method but also obtains the macrofnancial risk indicators using the entropy-based TOPSIS method, which is more reasonable and objective in assigning weights to the four sectors' default risk.Second, it investigates the efect of foreign capital fows on macrofnancial risk from the standpoint of portfolio investment.Te impact of international capital movements on macrofnancial risk in terms of external shocks and the mechanism of action are less well studied in the existing literature.Tis article tests the short-and long-term implications of international portfolio investment on macrofnancial risk in emerging economies using a panel model technique and explores the heterogeneity efect from the capital fow and capital type perspectives, respectively.Tird, this paper fnds that foreign exchange reserves and capital control can efectively manage the macrofnancial risk that comes from international portfolio investment fows.However, for equity securities, foreign exchange reserves cannot efectively regulate the macrofnancial risk that comes from capital fows, and capital control instruments are needed to change the state of macrofnancial risk so that international capital can play a full and positive role.
Te innovation of this paper is that, on the one hand, in the previous studies related to the risk efect of cross-border capital fows, the focus was mainly on the impact efect of the total amount of cross-border capital, while the diferences in the paths of action of various types of capital were ignored.Compared with direct investment and other capital, portfolio capital has a shorter turnover period and greater capital fexibility, and its risk efect deserves more attention.Terefore, this paper chooses to study the risk efect of portfolio capital based on relevant studies and discusses the efect of foreign exchange reserves and capital controls in dealing with the risk efect of portfolio investment fows in an innovative way.On the other hand, most of the existing literature focuses on the stability of fnancial institutions or fnancial markets but less on the characteristics of the macrofnancial risks that include various sectors afected by capital fows from an economy-wide perspective.In this regard, this paper innovatively combines the contingent claims analysis and the entropy-based TOPSIS method to construct macrofnancial risk indicators based on the existing methods.
Te rest of this article is organized as follows: the theoretical analysis and research assumptions are reviewed in Section 2. Section 3 provides the research design, including the introduction of data sources, the construction of core indicators, the benchmark regression model, and the descriptive statistics of variables.Section 4 describes the analysis of benchmark regression results.Te efect of the management mechanism from the perspective of foreign exchange reserves and capital control is further discussed in Section 5. Section 6 concludes this article.

Theoretical Analysis and Research Assumptions
2.1.International Portfolio Investment Flows and Macrofnancial Risk.Due to the high demand for money, emerging economies frequently have the capacity to attract international investment with a degree of blindness and weak regulation during the process of economic development.Te initial infux of capital considerably promotes economic growth and permits higher returns on a variety of assets, but there is a propensity for overheating and asset bubbles, notably for highly speculative money, such as portfolio investing, which can infuence economic stability in four ways.Initially, the money supply when international portfolio investment fows occur, they can infuence the national foreign exchange reserve, causing unjustifed price increases or declines in the capital market and jeopardizing the capital market's stability.Te second channel is bank credit.With the enormous infux of international portfolio investments, commercial banks will engage in "excessive lending," exacerbating the surplus domestic liquidity and accelerating the rise in asset prices, such as equities.And when the local and international scenario changes, the enormous withdrawal of money will generate a credit constraint due to the fall in asset prices, resulting in turbulence in the fnancial markets.Te third channel is the interest rate channel.Money infows boost the availability of liquidity in the market, resulting in a drop in market interest rates and further promoting the fow of capital to the capital market, which leads to an increase in asset prices and potential fnancial risk.A rise in interest rates will result in a precipitous decline in asset prices and have an impact on fnancial stability.In addition, the economic fundamentals and investor mood channels have a signifcant efect.Capital infow can raise capital accumulation, improve technology, lower the cost of capital, and optimize resource allocation so that the current economy can be developed more efectively.However, capital outfow will cause the real economy to stagnate or possibly shrink, which would exacerbate the market's instability.Due to the immature development of capital markets in emerging economies in general and the high proportion of retail investors in the investor structure, the herd efect, overconfdence, excessive trading, and other irrational characteristics are evident from the perspective of the investor sentiment channel.Te movement of the portfolio will cause shifts in investor mood, which will then infuence the capital market.Te following assumptions are therefore suggested in this work: Hypothesis 1: International portfolio investment fow afects macrofnancial risk in emerging economies, and there are diferent impacts in the short and long term.

Reconciliation Mechanism Based on Foreign Exchange
Reserve and Capital Control.After the Asian fnancial crisis, an increasing number of emerging economies understood that foreign exchange reserves could be an important instrument to combat the crisis [34].As a result, some emerging nations expanded their foreign exchange reserves out of an abundance of caution [35].A foreign exchange reserve can reduce capital fow volatility and function as a stabilizer [27].Hypothesis 2a: Foreign exchange reserves can help manage macrofnancial risk caused by international portfolio investment, which plays a positive regulatory role, and there are efectiveness diferences when holding foreign exchange reserves at diferent intervals.
Capital controls are swift and highly focused, able to respond quickly to unanticipated shocks, and have a temporary regulatory function.Capital controls can be subdivided into control over the stock market, the bond market, the currency market, collective investment securities, and derivatives and instruments.Capital controls are primarily used to control capital fow by increasing international capital fow transaction fees.Changes in the level of capital control correspond to alterations in the international capital fow transaction costs.As the degree of capital controls increases, transaction costs continue to grow, the net proft of international speculative capital decreases due to increasing costs, and the dropping rate of return can efectively dissuade the enormous food of investment capital.Te infux of portfolio investment can have a substantial impact on the asset prices of countries and potentially cause asset bubbles, posing a substantial fnancial risk.Te increase in transaction costs of capital fows subject to capital controls efectively mitigates the impact of international portfolio investment fows on asset prices, thereby lowering the macrofnancial risk presented by international portfolio investment fows from the standpoint of asset prices.However, when the degree of capital controls is low, the increase in transaction costs is signifcantly less than the return on invested capital, particularly when the impact of falling international capital fows on asset prices under capital control is insufcient to mitigate the efect of rising asset prices on macrofnancial risk.When capital controls are below a specifc threshold, the moderating efect of capital control on the link between foreign portfolio investment fow and macrofnancial risk is not substantial.Terefore, there is a moderating efect and a threshold efect of capital controls between international portfolio investment fows and macrofnancial risk.When capital control is below the threshold level, the increase in transaction costs caused by capital control is insufcient to compensate for the risky shocks caused by increases in capital prices, and international portfolio investment fows continue to have a moderating efect on macrofnancial risk.Capital controls cause an increase in transaction costs and a drop in yields when they exceed the threshold level.Tis decreases the benefcial infuence of international portfolio investment fows on asset values, which in turn reduces macrofnancial risk.When capital control exceeds the threshold level, the benefcial impact of international portfolio investment fow on asset prices diminishes, resulting in a reduction in macrofnancial risk, indicating that international portfolio investment fow mitigates macrofnancial risk.Te following research hypothesis is therefore proposed: Hypothesis 2b: Capital controls have a moderating mechanism between international portfolio investment fows and macrofnancial risk, with international portfolio investment fows exhibiting a facilitating effect on macrofnancial risk when capital control is below the threshold and a mitigating efect on macrofnancial risk when capital control is above the threshold.

Study Design
3.1.Sample Selection.Tis paper selects quarterly data between 2001 and 2020 from 20 emerging economies in Argentina, Brazil, China, Russia, Korea, Mexico, South Africa, Turkey, India, Indonesia, Bulgaria, Chile, Croatia, the Czech Republic, Hungary, Malaysia, the Philippines, Poland, Sri Lanka, and Tailand as the sample.Te data used in this 4 Discrete Dynamics in Nature and Society study was obtained from the CEIC database, the World Bank database, the IMF database, the UN National Accounts Main Aggregates database, the WIND database, and the national statistical ofces of the sample countries.

Variable Defnition
3.2.1.Macrofnancial Risk.In contrast to fnancial risk, systemic risk, and systematic fnancial risk, macrofnancial risk emphasizes the transmission of risk between the fnancial sector and other sectors of the economy in the presence of external shocks, which not only measures the risk of the fnancial sector but also emphasizes the overall risk across sectors (systemic risk focuses on describing market risk arising from investor behaviour in fnancial markets, and systemic fnancial risk focuses on important fnancial institutions).Te macrofnancial risk index is derived on this basis by combining contingent claims analysis with the entropy-based TOPSIS method (TOPSIS is short for "Technique for Order Preference by Similarity to an Ideal Solution").Using contingent claims analysis, this study measures the default risk of the corporate sector, fnancial institutions, government sector, and household sector in the economy.Ten use the entropy-based TOPSIS method to synthesize the default risk of each sector to obtain the macrofnancial risk indicator.
(1) Te Contingent Claims Analysis.Using the contingent claims analysis, it measures the uncertainty of debt solvency, or default risk, for each sector.Te cause of default in relation to explicit debt maturity commitment repayment is uncertainty in asset value.Figure 1 depicts the link between the distribution of asset value (A t ) fuctuations and the default likelihood, where the horizontal solid line represents the maturity commitment payments (B t ) (the maturity commitment payment is the value of the debt without risk of default, which is the book value of the debt), and the asset value (A t ) changes follow a stochastic process, with the specifc expressions being: where μ A is the rate of return on assets, and σ A is the volatility of return on capital.Default occurs when the asset value falls below the promised repayment (A t ≤ B t ), and the default probability is as in equation ( 2) (as the contingent claims analysis method uses the probability of default between assets and liabilities to measure default risk, it focuses more on measuring potential default risk): where ε ∼ N (0, 1), N (•) is the cumulative function of the standard normal distribution, the actual default probability is N (−d 2, μ ), and the default probability under risk neutrality is N (−d 2 ), and the distribution of default probability under risk neutrality takes the risk-free rate r as the expected return.Considering the data availability and weighted processing achievability, this paper selects the default distance under risk neutrality as the default risk indicator for each sector with reference to Gong [36].
(2) Entropy-Based TOPSIS Method.Tis paper frst calculates the default risk of the corporate, fnancial, governmental, and household sectors using the contingent claims analysis, and then we combine the default risk of each sector using the entropy-based TOPSIS method to provide macrofnancial risk indicators.Te indicators are fairer and more objective thanks to the entropy-based TOPSIS method, which combines the quantitative ranking of TOPSIS with the benefts of the entropy weighting method in weight assignment.Specifcally, the measurement index M it is standardized as follows: Next, the information entropy E j and weight W j of N it are calculated, and the weighting matrix R is constructed as follows: Tirdly, determine the optimal solution Q + j and the worst solution Q − j and their Euclidean distances d + i and d − i as follows: Finally, we calculate the relative proximity C i (its value is between (0,1).Te larger the C i is, the greater the macrofnancial risk is, and vice versa): (3) Asset and Liability Indicators and Data Description.Te default risk of the corporate sector, fnancial sector, government sector, and household sector must be assessed in this contingent claim analysis using equity assets and liabilities.We divide each sector's assets and liabilities in this work in accordance with Gary et al. [37], and in addition, to ensure that the standard is consistent across nations, the deposit rate for each nation in the International Financial Statistics of the IMF is chosen as its risk-free rate.Additionally, the risk-free rates for each nation are determined using the deposit rates from the IMF's International Financial Statistics.Te specifc selection of sectoral assets and liabilities is shown in Table 1.

International Portfolio Investment Flow.
Te ratio of net fow in international capital to GDP is chosen as the indicator of international portfolio investment fow.International portfolio investment fow is the main explanatory variable in this study.Te ratio of capital infow and outfow of international portfolio investment to GDP is also used as an indicator of capital infow and outfow to analyse the heterogeneous infuence of capital fow direction.With 2000 serving as the base year, the data are defated.[38].Tis research chooses the Fernández data as the indicator of capital controls since it calculates the degree of control on both the input and outfow sides of capital as well as the overall capital fows.A larger value denotes a higher degree of capital control (since 2017 is the most recent year for which capital control indicator data has been updated, this article will use quarterly data from 2001 to 2017).To fully investigate the regulatory impact of capital control, this article also chooses capital outfow control and capital infow control as supplemental indicators.Additional control factors include the degree of external debt, the level of the exchange rate, the capital adequacy ratio, the degree of trade openness, and the degree of credit.Te data are defated using 2000 as the base period.
Te main variables used in this paper and their calculation methods are given in Table 2.

Model Design.
Tis paper builds a dynamic panel autoregressive distribution lag model for analysis to explore the short-and long-term equilibrium links between international portfolio investment fow and macrofnancial risk [39][40][41], and the dynamic panel ARDL model (p, q, m, n, l, k, h) is as follows: where λ, ɑ, φ, θ, c, δ, and σ denote the regression coefcients of the respective variables, μ i and ε denote the cross-sectional fxed efects and random error terms, respectively, and j denotes the lag order.When the 6 Discrete Dynamics in Nature and Society variables in equation ( 7) are smooth series with a cointegration relationship, there is a long-term equilibrium relationship for the error terms, and the error correction model can be constructed as follows: where ϕ i is the error correction coefcient, and β is the longrun equilibrium coefcient.

Descriptive Statistics.
Te results of the descriptive statistics for the key variables in this study are displayed in Table 3. Te table shows that the distribution of macrofnancial risk values is reasonably smooth and less volatile, with a low standard deviation, a mean that is near the median, and a tiny extreme diference between the minimum and maximum.Corporate default risk is below average in most nations and higher in a few, increasing the mean level of overall default risk.Te mean value for corporate default risk is 22.460, while the median value is 14.920.Te mean and median default risk values for the fnancial and government sectors are similar, and both variables' data concentration trends are improving.According to the fact that the mean value of default risk for the household sector is higher than the median, only a small number of countries have a higher risk of household default.Te mean and median values of the international equity fow indicators IPIF, IPII, and IPIO are generally similar, and the data distribution is stable.As can be seen from the wide range between the maximum and minimum values of foreign exchange reserves and the fact that the mean is higher than the median, most nations have below-average foreign exchange reserve ratios, while only a small number of nations, including Bulgaria, China, Croatia, and other nations, have above-average reserve ratios.[40].Te PMG estimator combines the characteristics of the MG estimator and the DFE estimator, which allow inter-group diferences in the intercept term, short-term coefcients, and error variables between diferent groups while the long-term coefcients are consistent.In addition, the main advantage of PMG is that it can reduce the impact of endogenous problems, so this paper uses PMG to estimate the parameters of the benchmark regression model.Te test fndings of international portfolio investment fow on macrofnancial risk are shown in Table 5.While columns (2) to (5) show the short-and long-term dynamic relationships between international portfolio investment fow and default risk in the corporate, fnancial, governmental, and household sectors, respectively, column (1) shows the short-and long-term dynamic relationships between international portfolio investment fow and macrofnancial risk.Te short-term portfolio investment fow has a catalytic efect on macrofnancial risk, and an increase in portfolio investment fow in the short run results in a corresponding increase in macrofnancial risk, as shown in column (1), where the coefcient of ΔIPIF on MR is 0.0115 and signifcant at the 1% statistical level.Long-term portfolio investment fow has a dampening infuence on macrofnancial risk, and an increase in portfolio investment fow over time will somewhat reduce macrofnancial risk.Te coefcient of IPIF on MR is −0.0010, which is signifcant at the 5% level of signifcance.Te estimated coefcient of ECT is −0.5760 and statistically signifcant at the 1% level based on the results of the error correction term.Tis means that there is a reverse adjustment mechanism and strong convergence of the model, where the macrofnancial risk will quickly return to the long-term equilibrium after being pushed away by short-term efects, and this deviation can be fxed by 57.6% in the short run.

Empirical Results
Te impact of short-term portfolio investment fow on corporate default risk is negligible in column (2), while the impact of long-term portfolio investment fow is 0.5716.Te nonsignifcant ECT estimation result suggests that there is no moderating mechanism.Te estimated ΔIPIF coefcient on FR in column (3) is 0.0066, which indicates that larger portfolio investment fows over the near term increase the risk of default in the fnancial sector.Te long-term coefcient of ΔIPIF on GR is 0.0260, indicating that an increase in portfolio investment fow over the long term will result in a similar increase in default risk in the government sector.In column (4), the infuence of IPIF on GR is not signifcant.Additionally, column (5) displays the regression fndings of portfolio investment fow on default risk in the household sector, and the results reveal that this infuence is negligible in both the short and long terms.
According to the fndings, there is a short-term and longterm impact of international portfolio fow on macrofnancial risk.Rising portfolio fows increase macrofnancial risk over the near term, but they reduce it over the long term, which confrms Hypothesis 1. Short-term crossborder capital fows, especially portfolio capital, will afect the vulnerability of the fnancial system through the degree of the credit boom.Due to the close fnancial correlation among various sectors, this impact will be transmitted to various sectors of the economy and cause macrofnancial risk to rise.Tis result is consistent with the fndings of Forbes and Warnock [8].On the other hand, unlike shortterm capital fows, long-term securities investment fows will not cause frequent fuctuations in the fnancial market but  will inject liquidity into the fnancial market to ease the relationship between assets and liabilities among various departments, and the risk of default among various departments will be reduced, further reducing macrofnancial risk.Terefore, long-term securities investment fows will reduce macrofnancial risks, and this result is also similar to Tang and Wang [42] and Tong and Zhang [43].

Heterogeneity Test of Diferent Capital Flow Direction.
Tis research explores the infuence of international portfolio investment on macrofnancial risk from two viewpoints, capital infow and outfow, to study the efect of the heterogeneity of international portfolio investment fows.Te impact of capital infow is seen in the results of the regression in Table 6.Te coefcient of IPII's efect on MR in column (1) is 0.0012, and the coefcient of ΔIPII's efect on MR is −0.0022.It shows that macrofnancial risk is catalysed by short-term portfolio investment infows and that a rise in short-term portfolio investment infow results in an equal increase in macrofnancial risk.On the other hand, macrofnancial risk is dampened by long-term portfolio infow, and macrofnancial risk will be somewhat reduced as portfolio infow increases over time.According to the coefcient estimation results of ECT, the model has a reverse adjustment mechanism and strong convergence.Macrofnancial risk will adjust to the long-term equilibrium more quickly after deviating from it due to short-term efects, and this deviation can be corrected in the short run by 59.18%.Compared with long-term capital fows, short-term capital fows are more unstable and often carry a higher level of risk.Bruno and Shin believe that crossborder capital infows release fnancial risk spillover efects by afecting the level of bank leverage [44].From the research results of this paper, when portfolio fows into the fnancial market on a large scale in the short term, it promotes the credit prosperity of fnancial institutions to a certain extent, and people have good expectations for the future market, resulting in potential debt, leverage, maturity, and liquidity.Te degree of mismatch among them increases [45,46].Due to the excessive expansion of credit, the potential default risk among various sectors of the economy has increased, which ultimately increases the macrofnancial risk level of the Note.Te standard deviation of the estimated regression coefcients is in parentheses; * , * * , * * * a are the statistics' signifcance levels, representing signifcant at 10%, 5%, and 1% level, respectively; Δ is the estimated result of the short-term impact coefcient, and those without Δ are the estimated result of the long-term impact coefcient, and ECT is the correction term of the error correction model.
economy as a whole [47].Long-term portfolio infows will fll the market's liquidity for a long time, which is conducive to the initial accumulation of corporate capital, increase the production scale of enterprises, and improve the utilisation efciency of domestic labour factors.With the improvement of enterprise productivity and the continuous expansion of market size, the development of industrial agglomeration and the industrial cluster model will be promoted, and enterprises will further increase their demand for fnancial markets, forcing fnancial markets to deepen reform and optimise capital allocation efciency [48].Gradually improve the level of risk management in a multicompetition environment, as well as the fnancial system's ability to withstand risks.At the same time, the development and improvement of the fnancial system will help reduce market operations, "rent-seeking" behaviour, and other transaction risks caused by illegal operations and reduce the potential macrofnancial risk level of the economy.Te fndings of the portfolio investment outfow regression on macrofnancial risk are shown in Table 7.As can be observed, there are both immediate and long-term implications of portfolio investment outfows on macrofnancial risk.In the long term, higher portfolio investment outfows reduce macrofnancial risk, whereas higher portfolio investment fows do the opposite in the short term.Te subpectoral results suggest that all sectors are insensitive to short-term portfolio investment outfows.On the other hand, default risk in the fnancial sector responds favourably to portfolio investment outfows in the long term, while default risk in the corporate and household sectors reacts negatively to it.Tis means that higher portfolio outfow over time not only exacerbates default risk in the fnancial sector but also mitigates default risk in the corporate and household sectors.Furthermore, neither a short-term nor a long-term portfolio outfow has a signifcant impact on the probability that the government sector will not be able to pay its obligations.
Zhang believes that short-term capital outfows have limited impact on the fnancial system.When the foreign market is expected to be good, domestic investors rush into the foreign market [49].Large-scale portfolio investment outfows will reduce the activity of the domestic fnancial market, thereby crowding out the speculative bubble in the fnancial market and bringing asset prices back to the fundamental value of the economy.From this perspective, the outfow of short-term securities capital does not have a signifcant impact on macrofnancial risk, which is consistent with the empirical results of this paper.In the long run, domestic fnancial markets and foreign fnancial markets are in a competitive relationship.Portfolio outfows can help domestic fnancial institutions reduce asset portfolio risks through rational asset allocation.In addition, it also helps fnancial investment institutions acquire foreign capital market service resources, advanced technology, and experience to feed back to the domestic fnancial industry, improve the level of the domestic fnancial market, and enhance the ability of the fnancial market to resist capital shocks.Capital outfows force the domestic fnancial market to a certain extent development and improve the fnancial system's ability to resist shocks, thereby reducing macrofnancial risks.

Heterogeneity Test for Diferent Capital
Types.Tis article further explores the impact of capital fows on macrofnancial risk from the perspectives of both equity securities and debt securities.An international portfolio investment comprises both equity securities and securities.Te regression results for the fow of equity securities and debt securities are displayed in Tables 8 and 9, respectively.It can be seen from the result in column (1) of Table 8 that the coefcient of the relationship between EIF and MR is 0.0037, which is signifcant at the 10% level of statistical signifcance.Tis result shows that the fow of long-term equity securities has a catalytic efect on macrofnancial risk and that an increase in the capital fow of equity securities increases macrofnancial risk.Te coefcient of the short-term efect of ΔEIF on MR is 0.0013, which shows that an increase in the fow of short-term equity securities will also increase macrofnancial risk.Fang et al. believe that speculative capital fows can easily lead to asset price fuctuations, and asset price fuctuations are an important cause of risk, so speculative capital fows will increase fnancial risks [50].Compared with bond capital, equity capital is more speculative, more fexible, and has a higher risk efect, so both short-term and long-term equity capital fows have a promoting efect on macrofnancial risks.Tis conclusion is consistent with the conclusions of Bai and Bathia et al. [14,51].
Te impact of the fow of debt securities on macrofnancial risk is depicted in Table 9 by the regression results.In column 1, the estimated coefcients for the efects of the fow of long-term debt securities and short-term debt securities on macrofnancial risk are −0.0164 and −0.0024, respectively.As opposed to equity securities, debt securities' capital fow has the potential to lower rather than increase macrofnancial risk.Te movement of debt securities has varying efects on default risk across industries, with no  discernible efects in the government and household sectors.
Long-term debt security fows reduce default risk for the corporate sector.In contrast, the fow of long-term debt securities lowers default risk for the fnancial sector, while the fow of short-term debt securities increases it.
Since the fnancial crisis in 2008, emerging economies have been favoured by bond capital [52], but cross-border bond capital fows have seldom triggered fnancial volatility in emerging economies.Unlike the characteristics that say equity capital promotes asset price fuctuations, bond capital fows help reduce asset price volatility, and asset prices are an important factor afecting macrofnancial risks [53].Terefore, both long-term and short-term bond capital liquidity can help reduce macrofnancial risk, which is consistent with the research results of this paper.

Capital Infow and Outfow of Diferent Capital Types.
Table 10 illustrates how debt and equity securities afect macrofnancial risk in terms of capital infows and outfows.Te impact of the infow of equity securities on macrofnancial risk is depicted in Column (1).Te infow of equity securities on macrofnancial risk over the short term is 0.0040, while the infow over the long term is −0.0116.Te results of the impact of equity security outfows on macrofnancial risk are displayed in Column (2).Te macrofnancial risk is not signifcantly impacted by the short-term outfow of equity securities, but it is signifcantly impacted by the long-term outfow, which is −0.0081.Given that capital infow will increase the potential mismatch between debt, leverage, maturity, and liquidity, increase the risk of default across sectors, and signifcantly increase macrofnancial risk, equity infow will increase macrofnancial risk in the short term, while both capital outfow and infow will reduce it in the long run.On the other hand, when equity securities are sold of, asset prices overlap and fall with more pronounced asset price movements and tighter market credit, somewhat alleviating the macro debt leverage mismatch and lowering the risk of default across sectors, ultimately eliminating potential macrofnancial risk.
From the results in Table 10, we can see that in terms of long-term capital fows, whether they are equity securities infows, equity securities outfows, debt securities infows, or debt securities outfows, they can all reduce macrofnancial risks.In terms of short-term capital fows, all kinds of oneway capital fows have a positive efect on the performance of macrofnancial risks.Tis shows that for the one-way capital fow of equity and debt capital, long-term capital fow has a negative risk efect, while short-term capital fow has a positive risk efect.Short-term capital fow is an important source of macrofnancial risk, which is consistent with the conclusion of Gang et al. [13].

Further Analysis
Prior empirical fndings demonstrate that, particularly in the short term, the fow of international portfolio investments has a major impact on macrofnancial risk.Te fow of international portfolio investments has the potential to signifcantly enhance macrofnancial risk, which warrants consideration and caution.So, the rest of this paper talks about how to control the macrofnancial risk that short-term portfolio investment fows cause.

Foreign Exchange Reserve.
To investigate the moderating role exerted by foreign exchange reserves in international portfolio investment and macrofnancial risk, the paper constructs a panel threshold model as follows: where FER it is the foreign exchange reserve of country i in period t.

Capital Control.
In addition to foreign exchange reserves, this paper also considers the control efect of capital controls, for which a panel threshold model is constructed as follows: where CC it is the capital control of country i in period t.When foreign exchange reserve is employed as the threshold variable, Table 11 displays the results of the threshold efect test for each model.Te results in the table show that the threshold efect is signifcant when there is only one threshold.Tis suggests that a single threshold model can be used for all three models when the main variables that explain them are, respectively, international portfolio fow, equity securities fow, and debt securities fow.
After defning the number of model thresholds, it is required to estimate the model's threshold values and assess their validity (the threshold estimate is the value obtained when the LR value of the likelihood ratio test statistic is zero, and the 95% confdence interval indicates that the LR statistic has a 95% probability of being within this interval, i.e., the LR value is less than the interval constituted by the critical value at the 5% signifcance level, the estimate is within the original hypothesis acceptance interval, and the single threshold estimate is consistent with the actual).Te estimates and confdence intervals for the threshold variables are shown in Table 12, and the threshold estimates of FER are 0.8699 in the IPIF model, 0.9194 in the EIF model, and 0.8102 in the DSF model.Figure 2 demonstrates that the likelihood ratio plots can further illustrate the threshold characteristics of each model.Approaching the threshold value reveals that the models have a large single threshold efect.Te threshold values of the models are selected based on the fndings of the threshold efect test and the likelihood ratio plots, and the validity of the threshold values is checked in this work so that additional regression analysis may be conducted.

Analysis of the Foreign Exchange Reserve Treshold
Model Result.Tis study tests the control efect and the impact of foreign exchange reserves on international portfolio investment and macrofnancial risk using a panel threshold model.Table 13 displays the results of the regression estimation of the foreign exchange reserve in the models of the fows of equity and debt securities, as well as international portfolio investments.Te international portfolio investment fow and macrofnancial risk regression results based on the foreign exchange reserve threshold model are displayed in Column (1).Te conclusion shows that the coefcient of the efect of international portfolio investment fow on macrofnancial risk is 0.0019 when foreign exchange reserve is less than the threshold value of 0.8699, and this result is signifcant at the 5% level.Te conclusion shows that the coefcient of the efect of international portfolio investment fow on macrofnancial risk is 0.0019 when foreign exchange reserve is more than the threshold value of 0.8699, and this fnding is signifcant at the 1% level.Tis fnding suggests that as foreign exchange reserves increase, the infuence of international portfolio investment fows on macrofnancial risk changes from promoting to suppressing, and that foreign exchange reserves play a signifcant role in controlling macrofnancial risk resulting from such fows.
Column (2) shows the control efect of foreign exchange reserves on equity securities fow and macrofnancial risk, with EIF_1 of 0.0255 and EIF_1 of 0.003.Tis indicates that foreign exchange reserves can reduce the macrofnancial risk generated by equity securities fows to some extent but still cannot fully mitigate this risk.In column (3), debt security fows have a dampening efect on macrofnancial risk when foreign exchange reserves are below the threshold, and this dampening efect is stronger when foreign exchange reserves are above the threshold.
After the Asian fnancial crisis, developing countries summed up the lessons of insufcient foreign exchange reserves and increased their foreign exchange reserves to cope with the impact of national capital.Tornell believes that high foreign exchange reserves can make up for weak economic fundamentals to deal with the impact of international capital [23].Te results of portfolio and debt securities in this paper strongly support this conclusion.But other scholars believe that foreign exchange reserves can cope with the impact of international capital, but the efect is limited [24,26].Judging from the empirical results of equity securities, foreign exchange reserves have not efectively reduced macrofnancial risks, which proves that foreign exchange reserves have a certain role as a stabilizer in response to capital fow shocks, but the efect is efective.

Treshold Efect Test.
Combining the results in Tables 14 and 15 with Figures 3 to 5, it appears that in the international portfolio fow model, the single threshold model should be selected for capital control, capital infow control, and capital outfow control.For the equity securities model, there is no threshold for capital infow control, and the rest should be selected as a single-threshold model.For the debt security model, all should choose the single threshold model.

Analysis of the Capital Control Treshold Model Result.
From the coefcient estimation results in Table 16, it is obvious that capital control, including control of capital infows and outfows, is efective in reducing macrofnancial risks brought on by the movement of international portfolio investments.Te results of numerical regressions show that, from the two stages before and after the threshold, foreign exchange reserve and capital control have roughly the same efect coefcient on macrofnancial risk from international portfolio investment fow, with foreign exchange reserve focusing on mild responses and capital control focusing on strong control.Moreover, Domanski et al. believed that foreign exchange reserves can efectively deal with capital shocks, but the cost of holding foreign exchange reserves is relatively high, and many countries tend to reduce foreign exchange reserves [54].When it comes to controlling the link between the fow of international portfolio investments and macrofnancial risk, both foreign exchange reserves and capital controls are efective.
Te capital control regression results for the models using debt and equity securities are displayed in Table 17.
Based on the regression results in the previous section, the promotion efect of equity securities fows on macrofnancial risk can only be somewhat reduced by foreign exchange reserves.Te efect of equity securities fows on   macrofnancial risk can only be somewhat reduced by foreign exchange reserves.Capital controls can efectively afect the structure of capital infows to host countries [55,56], especially for emerging economies, which are more efective at coping with international capital shocks than developed countries [30].In managing macrofnancial risks

Conclusion
Since the 1990s, the process of economic globalisation has accelerated.Emerging economies have gradually assimilated into the global fnancial market, growing in popularity with foreign capital that prefers the better growth prospects of emerging economies to advanced economies that have fnished industrializing.Although international portfolio capital infows have helped fuel the market boom, they have also caused some worry about the emerging economies' fnancial stability.Emerging economies' growth is signifcantly infuenced by foreign capital.Open capital accounts in emerging economies make them particularly susceptible to signifcant shifts in international capital fows, which can either precipitate fnancial crises there or have a more muted resolution [58].To explore how international portfolio investment fows afect macrofnancial risk in emerging economies and how to manage this risk efect, this paper develops macrofnancial risk indicators by using contingent claims analysis and the entropy-based TOPSIS method to conduct this study, empirically investigates the short-and long-term efects of international portfolio investment and macrofnancial risk by using a panel distribution lag model, and investigates how capital fow afects the management of macrofnancial risk under capital fow from the standpoint of foreign exchange reserves and capital control by using a panel threshold model.Tis paper demonstrates, through an examination of the relationship between macrofnancial risk and international portfolio investment fows, that international portfolio investment fows will increase the macrofnancial risk of emerging economies in the short term but reduce it in the long term.From the perspective of the components of international portfolio investment, high-risk and speculative international speculative capital will have a negative efect on the real economy [51].Furthermore, this paper examines the management efects of foreign exchange reserves and capital control to mitigate the damage that the risk may cause.Tis paper argues that foreign exchange reserves can play a positive moderating role in international portfolio fow and macrofnancial risk, but only to a limited extent.Capital controls are tougher, but risk controls work well.Both foreign exchange reserves and capital control have efective risk management capabilities.When equity capital fows frequently, capital control works better at managing macrofnancial risk.
With the change in China's COVID-19 pandemic policy, it is bound to face the uncertain hit of the omicron wave.Te Russia-Ukraine confict is driving up commodity prices, exacerbating supply disruptions, exacerbating infation, and exacerbating fnancial vulnerability.Tese heightened uncertainties and increased geopolitical risks will lead to more frequent global capital fows, and unpredictable short-term shocks will have a huge impact on emerging economies.Te results of this paper can provide a theoretical basis for emerging economies to identify and manage international portfolio fow, including equity securities, bond securities, and the risk efects of infow and outfow, so that they can better deal with the shock of capital fows against the complex global economic background.For example, by strengthening the deepening reform and improvement of the fnancial system to improve the ability of emerging economies to resist external risks [59], Compared with longterm portfolio fows, the impact of short-term capital fows, especially equity securities fows, on the macrofnancial risks of emerging economies cannot be ignored.To monitor the impact of cross-border portfolio investment fows on emerging economies, risk early warning indicators should be established.At the same time, since asset price volatility is the main factor afecting macrofnancial risk [60], asset price level can also be used as a monitoring variable for macrofnancial stability.However, in addition to predicting and identifying risk factors, it is more critical for emerging economies to reduce the negative impact of unstable capital fows on macrofnance by strengthening macroprudential measures (liquidity bufers, enriching foreign exchange reserves), or even by implementing necessary capital controls [61].Te conclusion provides data support for emerging economies to identify and efectively manage the risk efect of securities capital, allowing emerging economies to better prevent and cope with the risk of capital shock and maintain sustainable and stable economic development in the complex global economic backdrop.

Figure 1 :
Figure 1: Asset value and default risk.
3.2.3.Other Variables.In this study, there are two threshold adjustment factors.One is foreign exchange reserves.As a gauge of each nation's foreign exchange reserves, the foreign exchange reserve to GDP ratio is chosen, and the base year 2000 is used to defate it.Te other is capital control.For choosing the indicator better, it refers to Yu et al. who use the capital controls data derived by Fernández from the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions

Table 4 .
All variables pass the unit root test, indicating the series is smooth and stable according to the test fndings.
4.1.Empirical Analysis4.1.1.Unit Root Test.To prevent potential pseudoregression issues, the LLC, IPS, and Fisher-ADF methods used for long panel data testing were chosen for smoothness testing in this study before the regression estimate of the model was carried out, and the results are shown in

Table 1 :
Indicators of assets and liabilities in four departments.

Table 4 :
Results of unit root test.

Table 10 :
Infow and outfow of equity securities and debt securities.Prior to performing the regression analysis, the number of thresholds should be established, and the precise model form should be obtained.

Table 14 :
Result of the threshold efect test (capital control).

Table 13 :
Regression results of the threshold model (foreign exchange reserve.).

Table 16 :
Regression results of the threshold model (IPIF).

Table 17 :
Regression results of the threshold model (EIF and DSF).