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

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.

Bibliographic Details

Main Authors:	Raddatz, Claudio, Schmukler, Sergio L.
Language:	English
Published:	World Bank, Washington, DC 2012-05
Subjects:	ACTIONS OF INVESTORS, AGENCY PROBLEMS, ANNUAL FREQUENCIES, ARBITRAGE, ASSET ALLOCATION, ASSET ALLOCATIONS, ASSET GROWTH, ASSET HOLDINGS, ASSET MANAGEMENT, ASSET POSITIONS, ASSET PRICES, ASSETS, ASSETS UNDER MANAGEMENT, ASYMMETRIC INFORMATION, BANK CREDIT, BANKING CRISES, BEHAVIOR OF INVESTORS, BEHAVIOR OF MANAGERS, BEHAVIOR OF MUTUAL FUNDS, BENCHMARK, BENCHMARK INDEXES, BENCHMARKS, BOND, BOND FUND, BOND FUNDS, BOND INDEX, BOND MARKET, BOND MARKETS, BOND MUTUAL FUNDS, BONDS, BROAD MARKET INDEX, BUSINESS CYCLE, CAPITAL FLOW, CAPITAL FLOWS, CASH HOLDINGS, CENTRAL BANK, CLOSED-END FUNDS, COUNTRY PORTFOLIO, COUNTRY PORTFOLIOS, CREDIT DEFAULT, CREDIT DEFAULT SWAP, CURRENCY, CURRENCY CRISES, CURRENCY CRISIS, DEBT, DEPOSIT, DEPOSIT INSURANCE, DEPOSITORS, DEVELOPING COUNTRIES, DIVERSIFICATION, DIVIDEND, DIVIDEND PAYMENTS, DOMESTIC FUNDS, DOMESTIC MARKETS, DUMMY VARIABLE, DYNAMIC PANEL, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKETS, EQUITY FUND, EQUITY FUND ASSETS, EQUITY FUND FLOWS, EQUITY FUND MANAGERS, EQUITY FUNDS, EQUITY MARKETS, EQUITY MUTUAL FUNDS, EQUITY PRICE, EQUITY PRICES, EQUITY RETURN, EQUITY RETURNS, EXCHANGE RATES, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL DISTRESS, FINANCIAL INSTITUTIONS, FINANCIAL SYSTEM, FIXED INCOME, FIXED INCOME SECURITIES, FOREIGN ASSET, FOREIGN EXCHANGE, FOREIGN EXCHANGE MARKETS, FOREIGN INVESTORS, FOREIGN PORTFOLIO INVESTORS, FUND ASSET, FUND CAPITAL, FUND CHARACTERISTICS, FUND MANAGER, FUND NET, FUND PERFORMANCE, FUND PORTFOLIO, FUND PRICE, FUND PRICES, FUND RETURN, FUND RETURNS, FUND TYPE, FUND TYPES, GLOBAL BOND, GLOBAL EQUITY FUNDS, GLOBAL FUNDS, GLOBAL MARKETS, GLOBAL MUTUAL FUNDS, GROWTH OF ASSET, GROWTH OF ASSETS, GROWTH RATE, GROWTH RATES, HEDGE FUNDS, IDIOSYNCRATIC RISK, INDIVIDUAL FUND, INDIVIDUAL FUND RETURNS, INSTITUTIONAL INVESTORS, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL BOND, INTERNATIONAL CAPITAL, INTERNATIONAL DIVERSIFICATION, INTERNATIONAL ECONOMICS, INTERNATIONAL EQUITY, INTERNATIONAL FINANCE, INTERNATIONAL FINANCIAL CONTAGION, INTERNATIONAL FUNDS, INTERNATIONAL INVESTMENTS, INTERNATIONAL INVESTORS, INTERNATIONAL MARKETS, INTERNATIONAL MUTUAL FUNDS, INTERNATIONAL PORTFOLIO, INVESTING, INVESTMENT FUNDS, INVESTMENT OPPORTUNITIES, INVESTOR BEHAVIOR, LIQUIDATIONS, LIQUIDITY, LIQUIDITY RISK, LONG-TERM INVESTMENTS, MANAGEMENT COMPANY, MARKET DISCIPLINE, MARKET EFFICIENCY, MARKET PARTICIPANTS, MARKET VOLATILITY, MATURITY, MATURITY MISMATCH, MATURITY TRANSFORMATION, MOMENTUM INVESTMENT STRATEGIES, MOMENTUM TRADING, MORAL HAZARD, MUTUAL FUND, MUTUAL FUND ASSETS, MUTUAL FUND BEHAVIOR, MUTUAL FUND DATA, MUTUAL FUND FAMILY, MUTUAL FUND FLOWS, MUTUAL FUND HERDING, MUTUAL FUND HOLDINGS, MUTUAL FUND INVESTMENT, MUTUAL FUND INVESTMENTS, MUTUAL FUND INVESTORS, MUTUAL FUND MANAGERS, MUTUAL FUND NAME, MUTUAL FUND PORTFOLIOS, MUTUAL FUND STRATEGIES, MUTUAL FUNDS, NAV, NEGATIVE SHOCKS, NET ASSET, NET ASSET VALUE, NET ASSET VALUES, NET ASSETS, NET RETURNS, NUMBER OF SHARES, OLIGOPOLY, OPEN-END FUNDS, OPEN-END MUTUAL FUNDS, OPTIMAL PORTFOLIOS, PASSIVE FUNDS, POLITICAL ECONOMY, PORTFOLIO, PORTFOLIO ALLOCATIONS, PORTFOLIO COMPOSITION, PORTFOLIO COMPOSITIONS, PORTFOLIO HOLDINGS, PORTFOLIO PERFORMANCE, PORTFOLIO WEIGHT, PORTFOLIO WEIGHTS, POSITIVE FEEDBACK, PRICE CHANGES, PRICE DISCOVERY, PRINCIPAL-AGENT PROBLEMS, PROSPECTUS, RATE OF RETURNS, RATES OF RETURNS, REDEMPTION, REDEMPTIONS, REGIONAL FUNDS, REPO, RESERVE BANK, RETURN, RETURN DATA, RETURN DIFFERENTIALS, RETURN VARIABILITY, RETURNS, RISK MEASURES, RISK TAKING, ROBUSTNESS CHECKS, S&P, SOPHISTICATED INVESTORS, SOVEREIGN BOND, STOCK INDICES, STOCK MARKET, STOCK MARKET INDEXES, STOCK MARKETS, STOCK PRICE, STOCK PRICES, SYSTEMIC RISK, TRANSPARENCY, TYPES OF FUNDS, VALUATION, VALUATION CHANGES, VOLATILITY, WEALTH EFFECTS,
Online Access:	http://documents.worldbank.org/curated/en/2012/05/16271853/international-transmission-shocks-micro-evidence-mutual-fund-portfolios https://hdl.handle.net/10986/9347
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