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Equity Market Globalization and Portfolio Rebalancing

Kyungkeun Kim () and Dongwon Lee ()
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Kyungkeun Kim: Economic Research Institute, The Bank of Korea
Dongwon Lee: University of California, Riverside

No 2017-17, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper examines how the financial globalization affects international equity mutual funds' portfolio choices in emerging markets. By examining the monthly holdings of 155 international funds, we first show that these funds actively engage in a rebalancing strategy to maintain their risk preferences upon realization of excess return changes. We also document robust evidence that these funds' propensity of rebalancing is larger in a country whose equity market is more strongly correlated with the global market. The results help understand how the financial globalization may raise the portfolio risk of the international funds' equity holdings in emerging economies.

Keywords: Equity market globalization; Portfolio allocation; Portfolio rebalancing; Return correlation (search for similar items in EconPapers)
JEL-codes: F3 G11 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-opm and nep-rmg
Date: 2017-06-13
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