International Asset Allocations and Capital Flows : The Benchmark Effect
This paper studies channels through which well-known benchmark indexes impact asset allocations and capital flows across countries. The study uses unique monthly micro-level data of benchmark compositions and mutual fund investments during 1996-201...
| Main Authors: | , , |
|---|---|
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/05/19496736/international-asset-allocations-capital-flows-benchmark-effect http://hdl.handle.net/10986/18337 |
| Summary: | This paper studies channels through
which well-known benchmark indexes impact asset allocations
and capital flows across countries. The study uses unique
monthly micro-level data of benchmark compositions and
mutual fund investments during 1996-2012. Benchmarks have
important effects on equity and bond mutual fund portfolios
across funds with different degrees of activism. Benchmarks
explain, on average, around 70 percent of country
allocations and have significant impact even on active
funds. Benchmark effects are important after controlling for
industry, macroeconomic, and country-specific, time-varying
effects. Reverse causality does not drive the results.
Exogenous, pre-announced changes in benchmarks result in
movements in asset allocations mostly when these changes are
implemented (not when announced). By impacting country
allocations, benchmarks affect capital flows across
countries through direct and indirect channels, including
contagion. They explain apparently counterintuitive
movements in capital flows, generating outflows from
countries when upgraded and with large market capitalization
and better relative performance. |
|---|