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

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  • Raddatz, Claudio
  • Schmukler, Sergio L.

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 both the underlying investors and fund managers through (i) injections into/redemptions out of 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, e.g., generating large reallocations during the global financial 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 country weights. Capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 88 (2012)
Issue (Month): 2 ()
Pages: 357-374

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Handle: RePEc:eee:inecon:v:88:y:2012:i:2:p:357-374

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Contagion; Crises; Global financial crisis; International capital flows; Mutual fund investors; Mutual fund managers;

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References

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Cited by:
  1. Eduardo Levy Yeyati & Tomas Williams, 2011. "Emerging economies in the 2000s:Real decoupling and financial recoupling," Business School Working Papers 2011-06_correccion, Universidad Torcuato Di Tella.
  2. Damien PUY, 2013. "Institutional Investors Flows and the Geography of Contagion," Economics Working Papers ECO2013/06, European University Institute.
  3. Fratzscher, Marcel, 2012. "Capital controls and foreign exchange policy," Working Paper Series 1415, European Central Bank.
  4. Claudio Raddatz & Sergio L. Schmukler, 2011. "On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios," NBER Working Papers 17358, National Bureau of Economic Research, Inc.
  5. Marcel Fratzscher & Marco Lo Duca & Roland Straub, 2013. "On the International Spillovers of US Quantitative Easing," Discussion Papers of DIW Berlin 1304, DIW Berlin, German Institute for Economic Research.
  6. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2012. "A global monetary tsunami? On the spillovers of US Quantitative Easing," CEPR Discussion Papers 9195, C.E.P.R. Discussion Papers.
  7. José E. Gómez-González & Luis Fernando Melo Velandia, 2013. "Efectos de “ángeles caídos” en el mercado accionario colombiano: estudio de eventos del caso Interbolsa," Borradores de Economia 779, Banco de la Republica de Colombia.

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