Is There Diversification Incentive in Foreign Equity Fund Investment?: Evidence from Korean Equity Fund Market (in Korean)

This study investigates factors of foreign investment equity mutual fund demand over 2005 to 2008 where foreign equity fund demand increased rapidly. Since foreign equity investment shares less macro-risk with domestic equity investment, we particularly focus on the portfolio risk management driven demand. In empirical work, we choose three major foreign equity funds from six countries. Our empirical findings are as follows. First, we find evidence on domestic investors' demand for risk- management through foreign equity fund investment. Secondly, as the correlation window between domestic stock return and foreign equity fund return increases from one-month to twelve-month, the risk-management demand for foreign equity fund demand increased. Third, the foreign equity market's size has a positive effect on foreign equity fund demand. Lastly, foreign equity markets' geographic closeness and maturity also had significant effects on demand of foreign equity fund. Our results are challenging the previous belief that foreign equity investors are pursuing only high return.