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

Author

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  • Schmukler, Sergio
  • Raddatz, Claudio
Abstract
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.

Suggested Citation

  • Schmukler, Sergio & Raddatz, Claudio, 2012. "On the International Transmission of Shocks: Micro-Evidence From Mutual Fund Portfolios," CEPR Discussion Papers 9070, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9070
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    More about this item

    Keywords

    Contagion; Crises; Global financial crisis; International capital flows; Mutual fund managers; Mutual fund investors;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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