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Granular Portfolios and the Origins of International Spillovers

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  • Benhima, Kenza
  • Bolliger, Elio
  • Davenport, Margaret

Abstract

Capital-flow spillovers can originate in the granularity of country weights in portfolios. A delegated-portfolio model with sticky fund weights predicts that pessimism about countries that account for large fund shares reduces capital flows to other countries held in the same funds, even though expectations about those countries are unchanged -- a co-ownership spillover. We estimate the model's structural elasticities using a dataset that matches the GDP growth forecasts of global financial institutions to the equity mutual funds they manage. Co-ownership spillovers account for 60% of the variance of expectation-driven capital-flow reallocation, and their magnitude is comparable to other types of spillovers. Small advanced and emerging economies are the primary recipients; the G7 and BRICs are the main sources, producing a Large-to-Small rather than North-to-South transmission.

Suggested Citation

  • Benhima, Kenza & Bolliger, Elio & Davenport, Margaret, 2026. "Granular Portfolios and the Origins of International Spillovers," CEPR Discussion Papers 21134, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21134
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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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