International Asset Allocations and Capital Flows : The Benchmark Effect

This paper studies channels through which well-known benchmark indexes impact asset allocations and capital flows across countries. The study uses unique monthly micro-level data of benchmark compositions and mutual fund investments during 1996-2012. Benchmarks have important effects on equity and bond mutual fund portfolios across funds with different degrees of activism. Benchmarks explain, on average, around 70 percent of country allocations and have significant impact even on active funds. Benchmark effects are important after controlling for industry, macroeconomic, and country-specific, time-varying effects. Reverse causality does not drive the results. Exogenous, pre-announced changes in benchmarks result in movements in asset allocations mostly when these changes are implemented (not when announced). By impacting country allocations, benchmarks affect capital flows across countries through direct and indirect channels, including contagion. They explain apparently counterintuitive movements in capital flows, generating outflows from countries when upgraded and with large market capitalization and better relative performance.

Bibliographic Details

Main Authors:	Raddatz, Claudio, Schmukler, Sergio L., Williams, Tomas
Language:	English en_US
Published:	World Bank, Washington, DC 2014-05
Subjects:	ACCOUNTING, ACTIVE MANAGEMENT, ACTIVE SHARE, AGENCY PROBLEMS, ARBITRAGE, ASSET ALLOCATION, ASSET ALLOCATIONS, ASSET CLASS, ASSET LIQUIDATION, ASSET MANAGEMENT, ASSET MANAGERS, ASSET PRICES, ASSET PRICING, ASSETS UNDER MANAGEMENT, AVERAGE FUND, BALANCE OF PAYMENTS, BASELINE RESULTS, BEHAVIOR OF MUTUAL FUNDS, BENCHMARK, BENCHMARK ASSET, BENCHMARK INDEX, BENCHMARK INDEXES, BENCHMARK PORTFOLIO, BENCHMARK RETURNS, BENCHMARKS, BOND, BOND FUNDS, BOND INDEXES, BOND INVESTORS, BOND MARKET, BOND MUTUAL FUND, BONDS, CAPITAL ACCOUNT, CAPITAL ALLOCATION, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL INFLOWS, CAPITAL MARKET, CAPITAL MARKET FINANCING, CAPITAL MARKETS, CAPITAL OUTFLOWS, CENTRAL BANK, CORPORATE GOVERNANCE, CORPORATE INVESTMENT, COUNTRY PORTFOLIO, COUNTRY PORTFOLIOS, COUNTRY RISK, CREDIT MARKET, CREDIT MARKETS, CURRENCY, DEAD FUNDS, DEBT, DERIVATIVE, DEVELOPMENT POLICY, DIVERSIFICATION, DOMESTIC MARKETS, ELASTICITY, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET FUNDS, EMERGING MARKET INDEXES, EMERGING MARKETS, EQUITIES, EQUITY BENCHMARKS, EQUITY FUNDS, EQUITY INDEXES, EQUITY MUTUAL FUND, EQUITY MUTUAL FUNDS, EXCHANGE RATE, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL CONTAGION, FINANCIAL CRISIS, FINANCIAL FRAGILITY, FINANCIAL MARKETS, FINANCIAL OPENNESS, FINANCIAL SHOCKS, FINANCIAL STUDIES, FISCAL POLICY, FOREIGN ASSETS, FOREIGN INVESTORS, FOREIGN PORTFOLIO INVESTMENTS, FUND ASSETS, FUND CHARACTERISTICS, FUND FLOWS, FUND MANAGER, FUND MANAGERS, FUND OUTFLOWS, FUND RESEARCH, GDP, GDP PER CAPITA, GLOBAL FINANCIAL STABILITY, GLOBAL FUNDS, GLOBAL INDEX, GLOBAL MARKET, GLOBALIZATION, GLOBALIZATION OF SECURITIES, GROSS DOMESTIC PRODUCT, GROUP OF FUNDS, GROUPS OF FUNDS, GROWTH RATE, HOLDING, INCREASE IN FUND FLOWS, INDEX FUNDS, INDEX PORTFOLIO, INDIVIDUAL FUNDS, INDIVIDUAL SECURITIES, INDIVIDUAL SECURITY, INFLATION, INSTITUTIONAL INVESTORS, INTERNATIONAL ASSET, INTERNATIONAL ASSETS, INTERNATIONAL BANK, INTERNATIONAL CAPITAL, INTERNATIONAL DIVERSIFICATION, INTERNATIONAL ECONOMICS, INTERNATIONAL EQUITY, INTERNATIONAL FINANCE, INTERNATIONAL FUNDS, INTERNATIONAL INVESTMENT, INTERNATIONAL INVESTMENTS, INTERNATIONAL MUTUAL FUND, INTERNATIONAL MUTUAL FUNDS, INTERNATIONAL PORTFOLIO, INVESTING, INVESTMENT BEHAVIOR, INVESTMENT COMPANY, INVESTMENT DECISIONS, INVESTMENT STRATEGIES, INVESTMENT STRATEGY, INVESTMENT VEHICLES, INVESTOR PSYCHOLOGY, INVESTOR SENTIMENT, IRRATIONAL EXUBERANCE, LEVY, LIABILITY, LIQUIDATION, LIQUIDITY, MACROECONOMIC VARIABLES, MACROECONOMICS, MARKET CAPITALIZATION, MARKET CAPITALIZATIONS, MARKET COUNTRY, MARKET INDEX, MARKET INDEXES, MARKET INTEGRATION, MONETARY FUND, MONETARY POLICY, MONEY MANAGERS, MUTUAL FUND, MUTUAL FUND ASSET, MUTUAL FUND INDUSTRY, MUTUAL FUND INVESTMENTS, MUTUAL FUND MANAGERS, MUTUAL FUND PERFORMANCE, MUTUAL FUND PERFORMANCE EVALUATION, MUTUAL FUND PORTFOLIO, MUTUAL FUND PORTFOLIOS, MUTUAL FUND STRATEGIES, MUTUAL FUNDS, NAV, NEGATIVE SHOCKS, NET ASSET, NET ASSET VALUE, NET ASSETS, NET RETURN, NET RETURNS, PASSIVE FUNDS, PASSIVE INVESTMENT, PERFORMANCE EVALUATION, PERFORMANCE MEASUREMENT, POLICY RESPONSES, POLITICAL ECONOMY, PORTFOLIO ALLOCATION, PORTFOLIO ALLOCATIONS, PORTFOLIO CHANGES, PORTFOLIO CHOICE, PORTFOLIO COMPOSITION, PORTFOLIO FLOWS, PORTFOLIO HOLDINGS, PORTFOLIO MANAGEMENT, PORTFOLIO MANAGER, PORTFOLIO WEIGHT, PORTFOLIO WEIGHTS, PRICE PRESSURES, PRINCIPAL-AGENT PROBLEMS, PROSPECTUS, PUBLIC INFORMATION, REDEMPTIONS, REGIONAL FUNDS, RESERVE BANK, RETAIL INVESTORS, RETURN, RETURNS, RISK AVERSE, RISK AVERSION, RISK MANAGEMENT, S&P, SECURITIES, SECURITIES MARKETS, SECURITY MARKET, SOPHISTICATED INVESTORS, STOCK MARKET, STOCK MARKET RETURNS, STOCK RETURN, STOCK RETURNS, STOCKS, SYSTEMIC RISK, TRADING, TRANSACTION, TRANSACTION COSTS, TRANSPARENCY, TREASURY, TYPES OF FUNDS, VALUATIONS, VOLATILITY,
Online Access:	http://documents.worldbank.org/curated/en/2014/05/19496736/international-asset-allocations-capital-flows-benchmark-effect https://hdl.handle.net/10986/18337
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