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Discussion Paper Details

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Title: Asset fire sales and purchases and the international transmission of financial shocks

Author(s): Chotibhak Jotikasthira, Christian T Lundblad and Tarun Ramadorai

Publication Date: December 2009

Keyword(s): co-movement, contagion, hedge funds, international finance and mutual funds

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: We provide new evidence on the channels through which financial shocks are transmitted across international borders. Employing monthly data from 1996 to 2008 on over 1,000 developed country-domiciled mutual and hedge funds, we show that inflows and outflows experienced by these funds translate into significant changes in their portfolio allocations in 25 emerging markets. Despite funds' efforts to ameliorate the price impact of these portfolio allocation shifts, they substantially impact emerging market equity returns, and are associated with increases in co-movement between emerging and developed markets.

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Bibliographic Reference

Jotikasthira, C, Lundblad, C and Ramadorai, T. 2009. 'Asset fire sales and purchases and the international transmission of financial shocks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7595