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Racing to the exits: International transmissions of funding shocks during the Federal Reserve's taper experiment

G. Andrew Karolyi and Kirsty J. McLaren

Emerging Markets Review, 2017, vol. 32, issue C, 96-115

Abstract: In May 2013, the U.S. Federal Reserve announced the beginning of the end of the program of monthly security purchases, the so-called “tapering.” The announcement was associated with large investor outflows from EM funds and large fund re-allocations across countries and stocks. Unexpected flow-implied fund upward (downward) allocations are associated with positive (negative) individual security returns following the announcement. The effect is pronounced in EM stocks that had positive cumulative abnormal returns around earlier Federal Reserve asset-purchase announcements leading up to the taper. It is concentrated in more liquid, smaller capitalization stocks and is stronger for forced trades among funds with more active country bets.

Keywords: Mutual funds; International capital flows; Emerging markets; Monetary policy (search for similar items in EconPapers)
JEL-codes: F32 F36 G11 G15 G23 (search for similar items in EconPapers)
Date: 2017
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