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Financial panic and emerging market funds

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  • Yothin Jinjarak
  • Huanhuan Zheng

Abstract

This article studies equity investment of emerging-market funds based on the 2003-2009 weekly data and compares the dynamics of flow and return between tranquil period and financial panic based on the experience of the latest 2008-2009 global financial crisis. First, we find that the well-documented positive feedback trading is a tranquil-period phenomenon such that it is more difficult in general for emerging-market funds to attract new investment in financial panic. Second, the predictive power of flow on return is driven by a combination of price pressure and information effects in tranquil period, while the information effect dominates in financial panic. Third, the underlying co-movements or contagion of flow across the emerging-market funds influence the association between flow and return. Overall, the findings highlight the importance of accounting for state-dependent dynamics as well as cross-regional co-movements in the analysis of flow and return.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 20 (2010)
Issue (Month): 23 ()
Pages: 1793-1805

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Handle: RePEc:taf:apfiec:v:20:y:2010:i:23:p:1793-1805

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