Managers, Investors, and Crises : Mutual Fund Strategies in Emerging Markets
The authors address the trading strategies of mutual funds in emerging markets. The data set they develop permits analyses of these strategies at the level of individual portfolios. A methodologically novel feature of their analysis: they disentang...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/07/443624/managers-investors-crises-mutual-fund-strategies-emerging-markets http://hdl.handle.net/10986/19818 |
| Summary: | The authors address the trading
strategies of mutual funds in emerging markets. The data set
they develop permits analyses of these strategies at the
level of individual portfolios. A methodologically novel
feature of their analysis: they disentangle the behavior of
fund managers from that of investors. For both managers and
investors, they strongly reject the 0 hypothesis of no
momentum trading. Funds' momentum trading is positive:
they systematically buy winners and sell losers.
Contemporaneous momentum trading (buying current winners and
selling current losers) is stronger during crises, and
stronger for fund investors than for fund managers. Lagged
momentum trading (buying past winners and selling past
losers) is stronger during noncrises, and stronger for fund
managers. Investors also engage in contagion trading-selling
assets from one country when asset prices fall in another.
These findings are based on data about mutual funds that
represent only 10 percent of the market capitalization in
the countries considered. Were it a larger share of the
market, finding counterparties for their trades (the
investors who buy when they sell and sell when they buy)
would be difficult-and the premise that funds respond to
contemporaneous returns rather than causing them would
become tenuous. |
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