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Equity market integration and portfolio rebalancing

Kyungkeun Kim and Dongwon Lee

Journal of Banking & Finance, 2020, vol. 113, issue C

Abstract: This paper studies equity mutual funds’ portfolio choices in emerging markets with different degrees of financial market integration. By examining the monthly holdings of 385 mutual funds from 1999 to 2017, we find that these funds generally engage in portfolio rebalancing strategies in response to equity return changes. Moreover, we show that the propensity to rebalance is greater in stock markets that are more financially integrated into the world market. High market liquidity and low regulatory barriers, which characterize financial integration, are found to be important drivers of active rebalancing in emerging markets.

Keywords: Emerging markets; Equity market integration; International portfolio allocation; Mutual funds; Portfolio rebalancing (search for similar items in EconPapers)
JEL-codes: F32 G11 G15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jbankfin.2020.105775

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Handle: RePEc:eee:jbfina:v:113:y:2020:i:c:s0378426620300431