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On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios

  • Claudio Raddatz
  • Sergio L. Schmukler

This paper uses micro-level data on mutual funds from different financial centers investing in equity and bonds to study how investors and managers behave and transmit shocks across countries. The paper finds that the volatility of mutual fund investments is driven quantitatively by both the underlying investors and fund managers through (i) injections/redemptions into each fund and (ii) managerial changes in country weights and cash. Both investors and managers respond to country returns and crises and adjust their investments substantially, for example, generating large reallocations during the global crisis. Their behavior tends to be pro-cyclical, reducing their exposure to countries during bad times and increasing it when conditions improve. Managers actively change country weights over time, although there is significant short-run pass-through from returns to these weights. Consequently, capital flows from mutual funds do not seem to have a stabilizing role and expose countries in their portfolios to foreign shocks.

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File URL: http://www.nber.org/papers/w17358.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17358.

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Date of creation: Aug 2011
Publication status: published as Raddatz, Claudio & Schmukler, Sergio L., 2012. "On the international transmission of shocks: Micro-evidence from mutual fund portfolios," Journal of International Economics, Elsevier, vol. 88(2), pages 357-374.
Handle: RePEc:nbr:nberwo:17358
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