This paper utilizes a new dataset of foreign and domestic mutual funds in Mexico to assess
their behavior and obtains three new findings. First, foreign mutual funds are more sensitive
to global financial conditions and engage more in herding and positive feedback trading than
domestic mutual funds, notably during episodes of market stress. Second, the behavior of
foreign funds differs substantially across types of funds: bond funds are more sensitive to
global factors and engage more in positive feedback trading than equity funds; funds sold to
retail investors, open-end funds, small funds, and regional funds also appear to be less stable
sources of capital flows. Third, there is indicative evidence that foreign funds’ trading
behavior is associated with higher local market volatilities, notably in periods of market
stress; however, domestic mutual fund investors played some mitigating role.
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|Size: ||1.9 MB|
|Publisher: ||INTERNATIONAL MONETARY FUND|
|Date published: || 2015|
|ISBN: ||9781484388891 (DRM-EPUB)|
|Read Aloud: ||not allowed|