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Mutual fund investment in emerging markets - an overview

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Author Info
Kaminsky, Graciela
Lyons, Richard
Schmukler, Sergio

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Abstract

International mutual funds are one of the main channels for capital flows to emerging economies. Although mutual funds have become important contributors to financial market integration, little is known about their investment allocation, and strategies. The authors provide an overview of mutual fund activity in emerging markets. First, they describe international mutual funds'relative size, asset allocation, and country allocation. Second, they focus on fund behavior during crises, by analyzing data at the level of both investors, and fund managers. Among their findings: Equity investment in emerging markets has grown rapidly in the 1990s, much of it flowing through mutual funds. Collectively, these funds hold a sizable share of market capitalization in emerging economies. Asian, and Latin American funds achieved the fastest growth, but are smaller than domestic U.S. funds and world funds. When investigating abroad, U.S. mutual funds invest more in equity than in bonds. World funds invest mainly in developed nations (Canada, Europe, Japan, and the United States). Ten percent of their investment is in Asia, and Latin America. Mutual funds usually invest in a few countries within each region. Mutual fund investment was very responsive to the crises of the 1990s. Withdrawals from emerging markets during recent crises were large, which squares with existing evidence of financial contagion. Investments in Asian, and Latin American mutual funds are volatile. Because redemptions, and injections are large, relative to total funds under management, fund's flows are not stable. The cash held by managers during injections, and redemptions does not fluctuate significantly, so investors'actions are typically reflected in emerging market inflows, and outflows.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2529.

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Date of creation: 31 Jan 2001
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Handle: RePEc:wbk:wbrwps:2529

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Related research
Keywords: International Terrorism&Counterterrorism; Infrastructure Finance; Infrastructure Finance; Economic Theory&Research; Financial Intermediation;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Guillermo A. Calvo & Enrique G. Mendoza, 1997. "Rational herd behavior and the globalization of securities markets," Discussion Paper / Institute for Empirical Macroeconomics 120, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  2. Kaminsky, Graciela & Lyons, Richard & Schmukler, Sergio, 2000. "Managers, investors, and crises : mutual fund strategies in emerging markets," Policy Research Working Paper Series 2399, The World Bank. [Downloadable!]
    Other versions:
  3. Frankel, Jeffrey A & Schmukler, Sergio L, 2000. "Country Funds and Asymmetric Information," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(3), pages 177-95, July. [Downloadable!] (restricted)
    Other versions:
  4. Anne Jansen & Bankim Chadha & Laura E. Kodres & Donald J. Mathieson & Sunil Sharma & Barry J. Eichengreen, 1998. "Hedge Funds and Financial Market Dynamics," IMF Occasional Papers 166, International Monetary Fund.
  5. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June. [Downloadable!] (restricted)
    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kawai, Masahiro & Newfarmer, Richard & Schmukler, Sergio, 2001. "Crisis and contagion in East Asia : nine lessons," Policy Research Working Paper Series 2610, The World Bank. [Downloadable!]
  2. Claessens, Stijn & Klingebiel, Daniela & Schmukler, Sergio L., 2002. "Explaining the migration of stocks from exchanges in emerging economies to international centers," Policy Research Working Paper Series 2816, The World Bank. [Downloadable!]
    Other versions:
  3. Kristin Forbes & Menzie Chinn, 2003. "A Decomposition Of Global Linkages In Financial Markets Over Time," Santa Cruz Department of Economics, Working Paper Series 1041, Department of Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  4. Michael Chui & Simon Hall & Ashley Taylor, . "Crisis spillovers in emerging market economies: interlinkages, vulnerabilities and investor behaviour," Bank of England working papers 212, Bank of England. [Downloadable!]
  5. Sandra Lizarazo, 2009. "Contagion of Financial Crises in Sovereing Debt Markets," Working Papers 0907, Centro de Investigacion Economica, ITAM. [Downloadable!]
  6. Radovan Vadovic, 2009. "Early, Late, and Multiple Bidding in Internet Auctions," Working Papers 0904, Centro de Investigacion Economica, ITAM. [Downloadable!]
  7. Fernando, Deepthi & Klapper, Leora & Sulla, Victor & Vittas, Dimitri, 2003. "The global growth of mutual funds," Policy Research Working Paper Series 3055, The World Bank. [Downloadable!]
  8. Melisso Boschi & Aditya Goenka, 2006. "Habit formation and the transmission of financial crises," Economics Discussion Papers 608, University of Essex, Department of Economics. [Downloadable!]
  9. Nicolas Melissas, 2009. "On Bid Disclosure in OCS Wildcat Auctions," Working Papers 0905, Centro de Investigacion Economica, ITAM. [Downloadable!]
  10. Mihir A. Desai & C. Fritz Foley, 2004. "The Comovement of Returns and Investment Within the Multinational Firm," NBER Working Papers 10785, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Li L. Ong & Jorge A. Chan-Lau, 2005. "U.S. Mutual Fund Retail Investors in International Equity Markets: Is the Tail Wagging the Dog?," IMF Working Papers 05/162, International Monetary Fund. [Downloadable!]
  12. Sandra Lizarazo, 2009. "Default Risk and Risk Averse International Investors," Working Papers 0908, Centro de Investigacion Economica, ITAM. [Downloadable!]
  13. Ladekarl, Jeppe & Zervos, Sara, 2004. "Housekeeping and plumbing - the investability of emerging markets," Policy Research Working Paper Series 3229, The World Bank. [Downloadable!]
  14. Dong Chuhl Oh, 2009. "Contagion of Liquidity Crisis between Firms," Levine's Working Paper Archive 814577000000000197, David K. Levine. [Downloadable!]
  15. Reena Aggarwal & Leora Klapper & Peter D. Wysocki, 2003. "Portfolio preferences of foreign institutional investors," Policy Research Working Paper Series 3101, The World Bank. [Downloadable!]
    Other versions:
  16. Groh, Alexander P. & Liechtenstein, Heinrich & Canela, Miguel A., 2008. "Limited partners' perceptions of the Central Eastern European venture capital and private equity market," IESE Research Papers D/727, IESE Business School. [Downloadable!]
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