On the International Transmission of Shocks: Micro-Evidence From Mutual Fund Portfolios

Sergio Schmukler and Claudio Raddatz

No 9070, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper uses micro-level data on mutual funds from different financial centers investing in equity and bonds to study how investors and managers behave and transmit shocks across countries. The paper finds that the volatility of mutual fund investments is driven quantitatively by both the underlying investors and fund managers through (i) injections/redemptions into each fund and (ii) managerial changes in country weights and cash. Both investors and managers respond to country returns and crises and adjust their investments substantially, for example, generating large reallocations during the global crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries during bad times and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run pass-through from returns to these weights. Consequently, capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks.

Keywords: Contagion; Crises; Global financial crisis; International capital flows; Mutual fund managers; Mutual fund investors (search for similar items in EconPapers)
JEL-codes: F3 F32 F36 G01 G1 G11 G15 G2 G23 (search for similar items in EconPapers)
Date: 2012-08
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Related works:
Journal Article: On the international transmission of shocks: Micro-evidence from mutual fund portfolios (2012)
Working Paper: On the International Transmission of Shocks: Micro – Evidence From Mutual Fund Portfolios (2012)
Working Paper: On the international transmission of shocks: micro-evidence from mutual fund portfolios (2012)
Chapter: On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios (2011)
Working Paper: On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios (2011)
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