On the international transmission of shocks: micro-evidence from mutual fund portfolios

Claudio Raddatz and Sergio Schmukler

No 6072, Policy Research Working Paper Series from The World Bank

Abstract: Using micro-level data on mutual funds from different financial centers investing in equity and bonds, this paper analyzes how investors and managers behave and transmit shocks across countries. The paper shows that the volatility of mutual fund investments is quantitatively driven by investors through injections of capital into, or redemptions out of, each fund, and by managers changing the country weights and cash in their portfolios. Both investors and managers respond to returns and crises, and substantially adjust their investments accordingly. These mechanisms generated large capital reallocations during the global financial crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries experiencing crises and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run"pass-through,"meaning that price changes affect country weights. Consequently, capital flows from mutual funds do not seem to stabilize markets and instead expose countries to foreign shocks.

Keywords: Mutual Funds; Debt Markets; Emerging Markets; Investment and Investment Climate; Currencies and Exchange Rates (search for similar items in EconPapers)
Date: 2012-05-01
New Economics Papers: this item is included in nep-ifn and nep-opm
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Citations: View citations in EconPapers (145)

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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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