Equity Market Globalization and Portfolio Rebalancing

53 Pages Posted: 19 Jun 2017

See all articles by Kyungkeun Kim

Kyungkeun Kim

Economic Research Institute, The Bank of Korea

Dongwon Lee

University of California, Riverside (UCR)

Date Written: June 13, 2017

Abstract

This paper examines how the financial globalization affects international equity mutual funds’ portfolio choices in emerging markets. By examining the monthly holdings of 155 international funds, we first show that these funds actively engage in a rebalancing strategy to maintain their risk preferences upon realization of excess return changes. We also document robust evidence that these funds’ propensity of rebalancing is larger in a country whose equity market is more strongly correlated with the global market. The results help understand how the financial globalization may raise the portfolio risk of the international funds’ equity holdings in emerging economies.

Keywords: Equity market globalization, Portfolio allocation, Portfolio rebalancing, Return correlation

JEL Classification: F3, G11, G15

Suggested Citation

Kim, Kyungkeun and Lee, Dongwon, Equity Market Globalization and Portfolio Rebalancing (June 13, 2017). Bank of Korea WP 2017-17. Available at SSRN: https://ssrn.com/abstract=2988534 or http://dx.doi.org/10.2139/ssrn.2988534

Kyungkeun Kim (Contact Author)

Economic Research Institute, The Bank of Korea ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Dongwon Lee

University of California, Riverside (UCR) ( email )

900 University Avenue
Riverside, CA 92521
United States

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