A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds

Author: Mr. R. G Gelos and Mr. Eduardo Borensztein

Volume/Issue: Volume 2000 Issue 198

Publication date: December 2000

ISBN: 9781451860054

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Topics covered in this book

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Exports and Imports , Finance , WP , fund , emerging market , investor , Mutual funds , contagion , emerging markets , foreign portfolio investment , herding , financial crises , emerging market funds , fund manager , open-ended fund , country funds , nonresident investor , funds overtime , offshore fund , investment strategies , investor behavior , Emerging and frontier financial markets , Stock markets , Stocks , Capital flows , Global , Asia and Pacific , Europe , Middle East

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Summary

This paper explores the behavior of emerging market mutual funds using a novel database covering the holdings of individual funds over the period January 1996 to March 1999. An examination of individual crises shows that, on average, funds withdrew money one month prior to the events. The degree of herding among funds is statistically significant, but moderate. Herding is more widespread among open-ended funds than among closed-end funds, but not more prevalent during crises than during tranquil times. Funds tend to follow momentum strategies, selling past losers and buying past winners, but their overall behavior is more complex than often suggested.