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The Role of Mature Market Mutual Funds in Emerging Markets

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  • Amadou N. R. Sy
  • Li L. Ong

Abstract

The expansion of the global mutual funds industry has been characterized by growth in mature as well as emerging markets. This has clearly contributed to the development of local securities markets in emerging market economies, which in turn, has been key in attracting investment inflows from overseas funds. A major concern, however, is that large foreign investors could significantly disrupt the stability of local capital markets in the event of a market shock, with systemic implications for the real economy. Our estimates suggest that while local investors remain the more important group in terms of market share, the influence of foreign funds cannot be discounted. Asset allocation decisions by mature market funds- both dedicated and crossover-in aggregate, could affect emerging markets. In particular, European mutual funds appear to play a much bigger role in emerging markets than their U.S. counterparts.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/133.

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Length: 24
Date of creation: 01 Jul 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/133

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Keywords: Emerging markets; External debt; Stock markets; mutual funds; investors; bonds; bond; bond funds; fixed income; stock market; money market; institutional investors; stock market capitalization; foreign investors; financial stability; bond markets; investment restrictions; bond index; stock exchanges; emerging market bonds; financial assets; equity securities; international capital markets; cash flows; local capital markets; local bond; emerging market bond; financial markets; international capital; equity markets; market bond; investment companies; money market funds; investor protection; international financial markets; term bonds; hedge; foreign ownership; derivatives markets; financial institutions; outstanding debt; investment criteria; unit investment trust; foreign investment; stock exchange; government bonds; stock market cycles; money market fund; global bond; foreign equity; short-term bonds; investment returns; investment strategies; emerging markets stock; bond market; local bond market; financial market; equity market; international investors; international bond; liquid markets;

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References

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  1. Kim, Woochan & Wei, Shang-Jin, 2002. "Foreign portfolio investors before and during a crisis," Journal of International Economics, Elsevier, vol. 56(1), pages 77-96, January.
  2. Gaston Gelos & Eduardo Borensztein, 2000. "A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds," IMF Working Papers 00/198, International Monetary Fund.
  3. Karen K. Lewis, 1999. "Trying to Explain Home Bias in Equities and Consumption," Journal of Economic Literature, American Economic Association, vol. 37(2), pages 571-608, June.
  4. Karolyi, G. Andrew & Stulz, Rene M., 2003. "Are financial assets priced locally or globally?," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 16, pages 975-1020 Elsevier.
  5. Francis E. Warnock & Hali J. Edison, 2003. "U.S. Investors' Emerging Market Equity Portfolios," IMF Working Papers 03/238, International Monetary Fund.
  6. Kaminsky, Graciela & Lyons, Richard & Schmukler, Sergio, 2001. "Mutual fund investment in emerging markets - an overview," Policy Research Working Paper Series 2529, The World Bank.
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Cited by:
  1. Jorge A. Chan-Lau & Li L. Ong, 2005. "U.S. Mutual Fund Retail Investors in International Equity Markets," IMF Working Papers 05/162, International Monetary Fund.
  2. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion-A Survey," IMF Working Papers 11/92, International Monetary Fund.

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