Equity Market Globalization and Portfolio Rebalancing
53 Pages Posted: 19 Jun 2017
Date Written: June 13, 2017
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: Suggested Citation