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The Asset Allocation of Emerging Market Mutual Funds

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  • Piti Disyatat
  • Gaston Gelos

Abstract

Benchmark following and portfolio rebalancing effects have often been cited when trying to explain international financial contagion phenomena. Using a dataset containing the country allocation of individual dedicated emerging market equity funds, we assess the relevance of mean-variance optimization and benchmark following, finding strong evidence for both. We also present a framework to systematically extract useful information about market expectations from funds'' holdings.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/111.

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Length: 27
Date of creation: 01 Aug 2001
Date of revision:
Handle: RePEc:imf:imfwpa:01/111

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References

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  1. Garry J. Schinasi & R. Todd Smith, 2000. "Portfolio Diversification, Leverage, and Financial Contagion," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1.
  2. Eduardo R. Borensztein & R. Gaston Gelos, 2001. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," CESifo Working Paper Series 564, CESifo Group Munich.
  3. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, Elsevier, vol. 59(2), pages 151-193, February.
  4. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 58(3), pages 259-78, July.
  5. Iftekhar Hasan & Yusif Simaan, 1999. "A Rational Explanation For Home Country Bias," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 99-067, New York University, Leonard N. Stern School of Business-.
  6. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 13(4), pages 509-528, December.
  7. Jeffrey A. Frankel & Charles Engel, 1982. "Do Asset-Demand Functions Optimize over the Mean and Variance of Real Returns? A Six-Currency Test," NBER Working Papers 1051, National Bureau of Economic Research, Inc.
  8. Kenneth A. Froot & Tarun Ramadorai, 2001. "The Information Content of International Portfolio Flows," NBER Working Papers 8472, National Bureau of Economic Research, Inc.
  9. Roon, F.A. de & Nijman, T.E. & Werker, B.J.M., 1998. "Testing for mean-variance spanning with short sales constraints and transaction costs: The case of emerging markets," Discussion Paper, Tilburg University, Center for Economic Research 1998-07, Tilburg University, Center for Economic Research.
  10. Luis Catão & Robin Brooks, 2000. "The New Economy and Global Stock Return," IMF Working Papers 00/216, International Monetary Fund.
  11. Horst, J.R. ter & Roon, F.A. de & Werker, B.J.M., 2000. "Incorporating Estimation Risk in Portfolio Choice," Discussion Paper, Tilburg University, Center for Economic Research 2000-65, Tilburg University, Center for Economic Research.
  12. Serra, Ana Paula, 2000. "Country and industry factors in returns: evidence from emerging markets' stocks," Emerging Markets Review, Elsevier, Elsevier, vol. 1(2), pages 127-151, September.
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Citations

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Cited by:
  1. Fernando A. Broner & R. Gaston Gelos & Carmen M. Reinhart, 2005. "When in Peril, Retrench: Testing the Portfolio Channel of Contagion," Working Papers 207, Barcelona Graduate School of Economics.
  2. Mark Aguiar & Gita Gopinath, 2004. "Defaultable debt, interest rates and the current account," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
  3. Frenkel, Michael & Menkhoff, Lukas, 2003. "Are Foreign Institutional Investors Good for Emerging Markets?," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-283, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  4. R. Gaston Gelos & Shang-Jin Wei, 2002. "Transparency and International Investor Behavior," NBER Working Papers 9260, National Bureau of Economic Research, Inc.
  5. Ansgar Belke & Ralph Setzer, 2004. "Contagion, herding and exchange-rate instability — A survey," Intereconomics: Review of European Economic Policy, Springer, Springer, vol. 39(4), pages 222-228, July.
  6. International Monetary Fund, 2004. "When in Peril, Retrench," IMF Working Papers 04/131, International Monetary Fund.
  7. Pasquariello, Paolo, 2008. "The anatomy of financial crises: Evidence from the emerging ADR market," Journal of International Economics, Elsevier, Elsevier, vol. 76(2), pages 193-207, December.
  8. FitzGerald, Valpy, 2002. "The Instability of the Emerging Market Assets Demand Schedule," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  9. Valpy FitzGerald & Derya Krolzig, 2004. "Modelling the demand for emerging market assets," Money Macro and Finance (MMF) Research Group Conference 2003, Money Macro and Finance Research Group 29, Money Macro and Finance Research Group.
  10. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.
  11. Koehler-Geib, Friederike Norma, 2008. "The Effect of Uncertainty on the Occurrence and Spread of Financial Crises," Munich Dissertations in Economics, University of Munich, Department of Economics 8067, University of Munich, Department of Economics.
  12. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, Elsevier, vol. 10(1-2), pages 3-56, February.
  13. Valpy FitzGerald & Derya Krolzig, 2003. "Modeling the Demand for Emerging Market Assets," OFRC Working Papers Series, Oxford Financial Research Centre 2003fe10, Oxford Financial Research Centre.

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