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

In: Global Financial Crisis

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  • Claudio Raddatz
  • Sergio L. Schmukler

Abstract

This paper uses micro-level data on mutual funds from different financial centers investing in equity and bonds to study how investors and managers behave and transmit shocks across countries. The paper finds that the volatility of mutual fund investments is driven quantitatively by both the underlying investors and fund managers through (i) injections/redemptions into 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, for example, generating large reallocations during the global 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 these weights. Consequently, 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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This chapter was published in:

  • Charles Engel & Kristin Forbes & Jeffrey Frankel, 2012. "Global Financial Crisis," NBER Books, National Bureau of Economic Research, Inc, number enge11-2, October.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13167.

    Handle: RePEc:nbr:nberch:13167

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    Cited by:
    1. Marcel Fratzscher, 2011. "Capital Controls and Foreign Exchange Policy," Working Papers Central Bank of Chile, Central Bank of Chile 652, Central Bank of Chile.
    2. Michael G Papaioannou & Joonkyu Park & Jukka Pihlman & Han van der Hoorn, 2013. "Procyclical Behavior of Institutional Investors During the Recent Financial Crisis," IMF Working Papers 13/193, International Monetary Fund.
    3. Henri Audigé, 2014. "Net flows to emerging markets’ funds and the U.S. monetary policy after the subprime crisis," EconomiX Working Papers 2014-23, University of Paris West - Nanterre la Défense, EconomiX.
    4. 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.
    5. Eduardo Levy Yeyati & Tomas Williams, 2011. "Emerging economies in the 2000s:Real decoupling and financial recoupling," Business School Working Papers, Universidad Torcuato Di Tella 2011-06_correccion, Universidad Torcuato Di Tella.
    6. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2013. "On the international spillovers of US quantitative easing," Working Paper Series, European Central Bank 1557, European Central Bank.
    7. Fratzscher, Marcel & Lo Duca, Marco & Straub, Roland, 2012. "A global monetary tsunami? On the spillovers of US Quantitative Easing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9195, C.E.P.R. Discussion Papers.
    8. Claudio Raddatz & Sergio L. Schmukler, 2011. "On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios," NBER Chapters, in: Global Financial Crisis National Bureau of Economic Research, Inc.
    9. Kristin Forbes, 2012. "The "Big C": Identifying Contagion," NBER Working Papers 18465, National Bureau of Economic Research, Inc.
    10. Raddatz, Claudio & Schmukler, Sergio L. & Williams, Tomas, 2014. "International asset allocations and capital flows : the benchmark effect," Policy Research Working Paper Series 6866, The World Bank.
    11. Opazo, Luis & Raddatz, Claudio & Schmukler, Sergio L., 2014. "Institutional investors and long-term investment : evidence from Chile," Policy Research Working Paper Series 6922, The World Bank.
    12. Damien PUY, 2013. "Institutional Investors Flows and the Geography of Contagion," Economics Working Papers, European University Institute ECO2013/06, European University Institute.

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