Granular Portfolios and the Origins of International Spillovers

Kenza Benhima, Elio Bolliger and Margaret Davenport

No 21134, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Capital-flow spillovers can originate in the granularity of country weights in portfolios. A delegated-portfolio model with sticky fund weights predicts that pessimism about countries that account for large fund shares reduces capital flows to other countries held in the same funds, even though expectations about those countries are unchanged -- a co-ownership spillover. We estimate the model's structural elasticities using a dataset that matches the GDP growth forecasts of global financial institutions to the equity mutual funds they manage. Co-ownership spillovers account for 60% of the variance of expectation-driven capital-flow reallocation, and their magnitude is comparable to other types of spillovers. Small advanced and emerging economies are the primary recipients; the G7 and BRICs are the main sources, producing a Large-to-Small rather than North-to-South transmission.

Keywords: International portfolio allocation; Portfolio frictions (search for similar items in EconPapers)
JEL-codes: D84 F32 G11 G15 G23 (search for similar items in EconPapers)
Date: 2026-02
New Economics Papers: this item is included in nep-fdg, nep-ifn and nep-opm
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