Factor Analysis of Hong Kong’s Short-Term International Capital Flows Based on the VAR Model

Short-term international capital flows typically refer to the cross-border movement of funds, which may be aimed at seeking higher investment returns, engaging in currency arbitrage, avoiding risks, or responding to changes in the global macroeconomy and financial markets. Such flows are particularly active in Hong Kong and may pose challenges to the economic stability and the stability of financial markets there. This paper proposes the selection of five variables, including short-term capital flows, exchange rates, and interest differentials, and constructs a VAR model using monthly data from July 2019 to September 2023. Through empirical analysis, it is concluded that the main contributors to Hong Kong’s short-term international capital flows are primarily from within, followed by domestic and foreign interest differentials, and then by the rate of change in stock prices. The contributions of global financial market volatility and short-term fluctuations in exchange rates to Hong Kong’s short-term international capital flows are weaker. This conclusion is of significant importance for regulatory bodies and policymakers to closely monitor the dynamics of capital flows and to take appropriate measures to maintain the stability of financial markets.