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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.

Zonder onderwerpscode: economie

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Zonder onderwerpscode: economie

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Zonder onderwerpscode: wereldeconomie, ontwikkelingsproblematiek

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Zonder onderwerpscode: economie

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Pension funds have been expected to invest in a wide range of securities and provide liquidity to domestic capital markets since they are the most sophisticated investors, with plenty of resources to gather private information and manage portfolios professionally. However, by analyzing unique, monthly asset-level data from the pioneer case of Chile, this paper shows that pension funds tend to herd. This is consistent with pension funds copying each other in their investment strategies as a way to extract information, boost returns, and reduce risk. The authors compute measures of herding across asset classes (equities, government bonds, and private sector bonds) and at different pension fund industry levels. The results show that pension funds herd more in assets for which they have less market information and when risk increases. Moreover, herding is more prevalent across funds that narrowly compete with each other, that is, when comparing funds of the same type across pension fund administrators. There is much less herding within pension fund administrators and across pension fund administrators as a whole. This herding pattern is consistent with incentives for managers to be close to industry benchmarks, which might be driven by both market forces and regulation.

Capital Market Development --- Debt Markets --- Economic Theory & Research --- Emerging Markets --- Institutional Investors --- Investment and Investment Climate --- Investment Pattern --- Macroeconomics and Economic Growth --- Mutual Funds --- Portfolio Allocation