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Portfolio Constraints and Contagion in Emerging Markets

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  • Anna Ilyina

    (International Monetary Fund)

Abstract

The objective of this paper is twofold: (1) to analyze an optimal portfolio rebalancing by a fund manager in response to a "volatility shock" in one of the asset markets, under sufficiently realistic assumptions about the fund manager's performance criteria and portfolio restrictions; and (2) to analyze how the composition of the investor base determines the sensitivity of equilibrium asset prices to a shock originating in one of the fundamentally unrelated asset markets. The analysis confirms that certain combinations of portfolio constraints (notably short-sale constraints and benchmark-based performance criteria) can create an additional transmission mechanism for propagating shocks across fundamentally unrelated asset markets. The paper also discusses potential implications of recent and ongoing changes in the investor base for asset price volatility in emerging markets. Copyright 2006, International Monetary Fund

Suggested Citation

  • Anna Ilyina, 2006. "Portfolio Constraints and Contagion in Emerging Markets," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1-1.
    • Handle: RePEc:pal:imfstp:v:53:y:2006:i:3:p:1
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    Cited by:

    1. Ahmed, Walid M.A., 2021. "Stock market reactions to upside and downside volatility of Bitcoin: A quantile analysis," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    2. Mr. Michael G. Papaioannou & Mr. Joonkyu Park & Jukka Pihlman & Han van der Hoorn, 2013. "Procyclical Behavior of Institutional Investors During the Recent Financial Crisis: Causes, Impacts, and Challenges," IMF Working Papers 2013/193, International Monetary Fund.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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