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Investment Restrictions and Contagion in Emerging Markets

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  • Ms. Anna Ilyina

Abstract

The objectives of this paper are: (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 investment restrictions; and (2) to analyze the sensitivity of the equilibrium price of an asset to shocks originating in other fundamentally unrelated asset markets for a given mix of common investors. The analysis confirms that certain combinations of investment restrictions (notably short-sale constraints and benchmark-based performance criteria) can create additional transmission mechanisms for propagating shocks across fundamentally unrelated asset markets. The paper also discusses potential implications of recent and on-going changes in the investor base for emerging market securities for the asset price volatility.

Suggested Citation

  • Ms. Anna Ilyina, 2005. "Investment Restrictions and Contagion in Emerging Markets," IMF Working Papers 2005/190, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2005/190
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    References listed on IDEAS

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    Cited by:

    1. Mr. Gaston Gelos, 2011. "International Mutual Funds, Capital Flow Volatility, and Contagion – A Survey," IMF Working Papers 2011/092, International Monetary Fund.

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