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Equity Market Globalization and Portfolio Rebalancing

Author

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  • Kyungkeun Kim

    (Economic Research Institute, The Bank of Korea)

  • Dongwon Lee

    (University of California, Riverside)

Abstract

This paper examines how the financial globalization affects international equity mutual funds' portfolio choices in emerging markets. By examining the monthly holdings of 155 international funds, we first show that these funds actively engage in a rebalancing strategy to maintain their risk preferences upon realization of excess return changes. We also document robust evidence that these funds' propensity of rebalancing is larger in a country whose equity market is more strongly correlated with the global market. The results help understand how the financial globalization may raise the portfolio risk of the international funds' equity holdings in emerging economies.

Suggested Citation

  • Kyungkeun Kim & Dongwon Lee, 2017. "Equity Market Globalization and Portfolio Rebalancing," Working Papers 2017-17, Economic Research Institute, Bank of Korea.
    • Handle: RePEc:bok:wpaper:1717
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    References listed on IDEAS

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    2. McIver, Ron P. & Kang, Sang Hoon, 2020. "Financial crises and the dynamics of the spillovers between the U.S. and BRICS stock markets," Research in International Business and Finance, Elsevier, vol. 54(C).
    3. Cao, Yufei, 2022. "Extreme risk spillovers across financial markets under different crises," Economic Modelling, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Equity market globalization; Portfolio allocation; Portfolio rebalancing; Return correlation;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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