Asset fire sales and purchases and the international transmission of funding shocks

Jotikasthira, Chotibhak, Lundblad, Christian and Ramadorai, Tarun (2012) Asset fire sales and purchases and the international transmission of funding shocks. The Journal of Finance, 67 (6). pp. 2015-2050.

Abstract

We uncover a new channel through which shocks are transmitted across international markets. Investor flows to funds domiciled in developed markets force significant changes in their portfolio allocations to emerging markets. These forced trades affect equity prices, correlations between emerging markets, and the developed-market betas of emerging markets. These funding-driven fire sale effects are related to, but distinct from those arising purely from high fund holdings or high overlapping ownership of emerging markets in fund portfolios. A simple model and calibration exercise highlight the importance to these findings of 'push' effects from funds' domicile countries, and 'co-ownership spillover' between markets with overlapping fund ownership.

Item Type: Article
Keywords: co-movement, contagion, international finance, mutual funds, asset fire sales
Subject(s): Finance
Date Deposited: 19 Jun 2012 13:19
Last Modified: 21 Sep 2016 11:04
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3077

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