Description

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.

More publications in this series: Working Papers

More publications by: Jasmine Xiao