DP7595 Asset fire sales and purchases and the international transmission of financial shocks
|Author(s):||Chotibhak Jotikasthira, Christian T Lundblad, Tarun Ramadorai|
|Publication Date:||December 2009|
|Keyword(s):||co-movement, contagion, hedge funds, international finance, mutual funds|
|JEL(s):||F32, G12, G15|
|Programme Areas:||International Macroeconomics, Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=7595|
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.