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The Asset Allocation of Emerging Market Mutual Funds

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  • Piti Disyatat
  • R. G Gelos

Abstract

Benchmark following and portfolio rebalancing effects have often been cited when trying to explain international financial contagion phenomena. Using a dataset containing the country allocation of individual dedicated emerging market equity funds, we assess the relevance of mean-variance optimization and benchmark following, finding strong evidence for both. We also present a framework to systematically extract useful information about market expectations from funds' holdings.

Suggested Citation

  • Piti Disyatat & R. G Gelos, 2001. "The Asset Allocation of Emerging Market Mutual Funds," IMF Working Papers 01/111, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:01/111
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    References listed on IDEAS

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    1. Eduardo Borensztein & R. Gaston Gelos, 2003. "A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-3.
    2. Hasan, Iftekhar & Simaan, Yusif, 2000. "A rational explanation for home country bias," Journal of International Money and Finance, Elsevier, vol. 19(3), pages 331-361, June.
    3. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    4. Frankel, Jeffrey & Engel, Charles M., 1984. "Do asset-demand functions optimize over the mean and variance of real returns? A six-currency test," Journal of International Economics, Elsevier, vol. 17(3-4), pages 309-323, November.
    5. Nijman, T.E. & de Roon, F.A. & Werker, B.J.M., 2001. "Testing for Mean-Variance spanning with short sales constraints and transaction costs : The case of emerging markets," Other publications TiSEM f4a3551a-d7ae-4c22-8813-b, Tilburg University, School of Economics and Management.
    6. Fama, Eugene F., 1984. "The information in the term structure," Journal of Financial Economics, Elsevier, vol. 13(4), pages 509-528, December.
    7. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, vol. 58(3), pages 259-278, July.
    8. Kenneth A. Froot & Tarun Ramadorai, 2001. "The Information Content of International Portfolio Flows," NBER Working Papers 8472, National Bureau of Economic Research, Inc.
    9. de Roon, F.A. & Nijman, T.E. & Werker, B.J.M., 1998. "Testing for mean-variance spanning with short sales constraints and transaction costs : The case of emerging markets," Discussion Paper 1998-07, Tilburg University, Center for Economic Research.
    10. Garry J. Schinasi & R. Todd Smith, 2000. "Portfolio Diversification, Leverage, and Financial Contagion," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1-1.
    11. Luis Catão & Robin Brooks, 2000. "The New Economy and Global Stock Returns," IMF Working Papers 00/216, International Monetary Fund.
    12. Ter Horst, J.R. & de Roon, F.A. & Werker, B.J.M., 2000. "Incorporating Estimation Risk in Portfolio Choice," Discussion Paper 2000-65, Tilburg University, Center for Economic Research.
    13. Serra, Ana Paula, 2000. "Country and industry factors in returns: evidence from emerging markets' stocks," Emerging Markets Review, Elsevier, vol. 1(2), pages 127-151, September.
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    Cited by:

    1. Shang-Jin Wei & R. G Gelos, 2002. "Transparency and International Investor Behavior," IMF Working Papers 02/174, International Monetary Fund.
    2. FitzGerald, Valpy, 2002. "The Instability of the Emerging Market Assets Demand Schedule," WIDER Working Paper Series 080, World Institute for Development Economic Research (UNU-WIDER).
    3. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    4. Valpy FitzGerald & Derya Krolzig, 2004. "Modelling the demand for emerging market assets," Money Macro and Finance (MMF) Research Group Conference 2003 29, Money Macro and Finance Research Group.
    5. Koehler-Geib, Friederike Norma, 2008. "The Effect of Uncertainty on the Occurrence and Spread of Financial Crises," Munich Dissertations in Economics 8067, University of Munich, Department of Economics.
    6. Ansgar Belke & Ralph Setzer, 2004. "Contagion, herding and exchange-rate instability — A survey," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 39(4), pages 222-228, July.
    7. R. G Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey," IMF Working Papers 11/92, International Monetary Fund.
    8. Aguiar, Mark & Gopinath, Gita, 2006. "Defaultable debt, interest rates and the current account," Journal of International Economics, Elsevier, vol. 69(1), pages 64-83, June.
    9. repec:eee:inecon:v:108:y:2017:i:c:p:413-430 is not listed on IDEAS
    10. Raddatz, Claudio & Schmukler, Sergio L. & Williams, Tomás, 2017. "International asset allocations and capital flows: The benchmark effect," Journal of International Economics, Elsevier, vol. 108(C), pages 413-430.
    11. Valpy FitzGerald & Derya Krolzig, 2003. "Modeling the Demand for Emerging Market Assets," OFRC Working Papers Series 2003fe10, Oxford Financial Research Centre.
    12. Broner, Fernando A. & Gaston Gelos, R. & Reinhart, Carmen M., 2006. "When in peril, retrench: Testing the portfolio channel of contagion," Journal of International Economics, Elsevier, vol. 69(1), pages 203-230, June.
    13. Michael Frenkel & Lukas Menkhoff, 2004. "Are Foreign Institutional Investors Good for Emerging Markets?," The World Economy, Wiley Blackwell, vol. 27(8), pages 1275-1293, August.
    14. Pasquariello, Paolo, 2008. "The anatomy of financial crises: Evidence from the emerging ADR market," Journal of International Economics, Elsevier, vol. 76(2), pages 193-207, December.

    More about this item

    Keywords

    Investment; International financial markets; asset allocation; portfolio choice; contagion; statistic; risk aversion; optimization; correlation; covariance;

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