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A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds

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  • Gaston Gelos
  • Eduardo Borensztein

Abstract

This paper explores the behavior of emerging market mutual funds using a novel database covering the holdings of individual funds over the period January 1996 to March 1999. An examination of individual crises shows that, on average, funds withdrew money one month prior to the events. The degree of herding among funds is statistically significant, but moderate. Herding is more widespread among open-ended funds than among closed-end funds, but not more prevalent during crises than during tranquil times. Funds tend to follow momentum strategies, selling past losers and buying past winners, but their overall behavior is more complex than often suggested.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 00/198.

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Length: 36
Date of creation: 01 Dec 2000
Date of revision:
Handle: RePEc:imf:imfwpa:00/198

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Keywords: Emerging markets; Stock markets; investors; mutual funds; international investors; stock market; institutional investors; foreign investors; stock prices; expected value; stock market capitalization; investment strategies; offshore investment; equity markets; financial market; stock market index; financial markets; rational herding; portfolio investment; international capital; financial economics; fixed costs; bond; currency crises; stock index; investment barriers; hedge; emerging markets stock; fixed income; futures market; foreign stocks; hedging; investment flows; institutional ? investors; stock market volatility; financial contagion; investment behavior; stock valuation; liquid markets; total market capitalization; hedge funds;

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  1. Anthony J. Richards, 1996. "Volatility and Predictability in National Stock Markets," IMF Working Papers 96/29, International Monetary Fund.
  2. Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets: A Review," IMF Working Papers 00/48, International Monetary Fund.
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  12. Kenneth A. Froot & Paul G.J. O'Connell & Mark S. Seasholes, 1998. "The Portfolio Flows of International Investors, I," NBER Working Papers 6687, National Bureau of Economic Research, Inc.
  13. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, Elsevier, vol. 40(3-5), pages 603-615, April.
  14. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 797-817, August.
  15. Anthony J. Richards, 1996. "Volatility and Predictability in National Stock Markets: How Do Emerging and Mature Markets Differ?," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 461-501, September.
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