A Panic-Prone Pack? the Behavior of Emerging Market Mutual Funds

Gastón Gelos · Eduardo R. Borensztein

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Financial Markets and Investment Strategies Global Financial Crisis and Policies Financial Risk and Volatility Modeling

Abstract

This paper explores the behavior of emerging market mutual funds using a novel database covering the holdings of individual funds over the period January 1996 to March 1999. An examination of individual crises shows that, on average, funds withdrew money one month prior to the events. The degree of herding among funds is statistically significant, but moderate. Herding is more widespread among open-ended funds than among closed-end funds, but not more prevalent during crises than during tranquil times. Funds tend to follow momentum strategies, selling past losers and buying past winners, but their overall behavior is more complex than often suggested.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1981Biases in Dynamic Models with Fixed Effects 1992A Simple Model of Herd Behavior 1988Herd Behavior and Investment 1999Estimating dynamic panel data models: a guide for macroeconomists 1990Positive Feedback Investment Strategies and Destabilizing Rational Speculation 1992The impact of institutional trading on stock prices 1999Mutual Fund Herding and the Impact on Stock Prices

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2000Herd Behavior in Financial Markets 2003Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis 2004Analysis of intraday herding behavior among the sector ETFs 2020Equity market integration and portfolio rebalancing 2015Institutional Investors and Long-Term Investment: Evidence from Chile 2017Sophistication and price impact of foreign investors in the Brazilian stock market

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