The Role of Mature Market Mutual Funds in Emerging Markets: Myth or Mayhem?

Author/Editor:

Amadou N Sy ; Li L Ong

Publication Date:

July 1, 2004

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The expansion of the global mutual funds industry has been characterized by growth in mature as well as emerging markets. This has clearly contributed to the development of local securities markets in emerging market economies, which in turn, has been key in attracting investment inflows from overseas funds. A major concern, however, is that large foreign investors could significantly disrupt the stability of local capital markets in the event of a market shock, with systemic implications for the real economy. Our estimates suggest that while local investors remain the more important group in terms of market share, the influence of foreign funds cannot be discounted. Asset allocation decisions by mature market funds- both dedicated and crossover-in aggregate, could affect emerging markets. In particular, European mutual funds appear to play a much bigger role in emerging markets than their U.S. counterparts.

Series:

Working Paper No. 2004/133

Subject:

Emerging and frontier financial markets Mutual funds Securities markets Stock markets Stocks

English

Publication Date:

July 1, 2004

ISBN/ISSN:

9781451855524/1018-5941

Stock No:

WPIEA1332004

Pages:

24

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