Do Multi-Sector Bond Funds Pose Risks to Emerging Markets?

August 7, 2020

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Format: Chicago

Fabio Cortes, and Luca Sanfilippo. Do Multi-Sector Bond Funds Pose Risks to Emerging Markets?, (USA: International Monetary Fund, 2020) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Emerging economies in the post-crisis period increasingly saw portfolio debt inflows from a type of large international investment fund: Multi-Sector Bond Funds (MSBFs). These investors have lacked adequate representation in the literature. This paper constructs a new detailed database from micro-level MSBF emerging market (EM) holdings from 2009:Q4–2018:Q2. Exploiting this data, the paper assesses the risks they pose to the financial stability of specific emerging bond markets. The data shows that MSBFs are highly concentrated–both in their positions and their decision-making. The empirical results further suggest that MSBFs exhibit opportunistic behavior (and more so than other investment funds). In periods of high risk aversion, large MSBF portfolio reallocations out of EMs can be associated with underperformance of the same markets, signaling the importance of monitoring their footprint and better understanding their asset allocation decisions.

Subject: Bonds, Currencies, Emerging and frontier financial markets, Financial institutions, Financial markets, Money, Mutual funds, Securities markets

Keywords: Allocation decision, Bonds, Contagion, Currencies, EM asset market, EM assets, EM portfolio debt inflow, Emerging and frontier financial markets, Emerging markets, Family of funds, Fixed income, Global, Global bond, Hard currency, Investment funds, Mutual funds, Portfolio debt flows, Securities markets, WP

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/152
Stock No:

WPIEA2020152
ISBN:

9781513551982
ISSN:

1018-5941

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