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

Borensztein, Eduardo; Gelos, Gaston

doi:10.2139/ssrn.258438

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

CESifo Working Paper Series No. 564

IMF Working Paper No. 00/198

39 Pages Posted: 5 Feb 2001

See all articles by Eduardo Borensztein

Gaston Gelos

Bank for International Settlements; Centre for Economic Policy Research (CEPR)

There are 3 versions of this paper

Date Written: September 2001

Abstract

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.

Keywords: Mutual Funds, Contagion, Emerging Markets, Foreign Portfolio Investment, Herding, Financial Crises

JEL Classification: F21, G15

Suggested Citation: Suggested Citation

Borensztein, Eduardo and Gelos, R. Gaston, A Panic-Prone Pack? The Behavior of Emerging Market Mutual Funds (September 2001). CESifo Working Paper Series No. 564, IMF Working Paper No. 00/198, Available at SSRN: https://ssrn.com/abstract=258438 or http://dx.doi.org/10.2139/ssrn.258438