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International Asset Allocations and Capital Flows: The Benchmark Effect

Claudio Raddatz, Sergio Schmukler () and Tomas Williams ()

No 141, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: We study different channels through which well-known benchmark indexes impact asset allocations, capital flows, asset prices, and exchange rates across countries, using unique monthly micro-level data of benchmark compositions and mutual fund investments during 1996-2014. We exploit different events and the presence of countries in multiple benchmarks to study the impact of benchmarks. We find that movements in benchmarks appear to have important effects on equity and bond mutual fund portfolios, including passive and active funds. The effects persist even after controlling for other relevant variables, such as time-varying industry-level factors, country-specific effects, and macroeconomic fundamentals. Exogenous, pre-announced changes in benchmarks impact asset allocations, capital flows, and abnormal returns in asset prices and exchange rates. These systemic effects occur not just when the benchmark changes are announced, but also later on when they become effective. By impacting country allocations, benchmarks explain apparently counterintuitive movements in capital flows and aggregate prices.

Keywords: benchmark indexes; contagion; coordination mechanism; ETFs; international asset prices; international portfolio flows; mutual funds (search for similar items in EconPapers)
JEL-codes: F32 F36 G11 G15 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-opm
Date: 2017-09
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http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir141.pdf First version, 2017 (application/pdf)

Related works:
Journal Article: International asset allocations and capital flows: The benchmark effect (2017) Downloads
Working Paper: International Asset Allocations and Capital Flows: The Benchmark Effect (2017) Downloads
Working Paper: International Asset Allocations and Capital Flows: The Benchmark Effect (2015) Downloads
Working Paper: International asset allocations and capital flows: the benchmark effect (2014) Downloads
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