Investment Restrictions and Contagion in Emerging Markets

The objectives of this paper are: (1) to analyze an optimal portfolio rebalancing by a fund manager in response to a "volatility shock" in one of the asset markets, under sufficiently realistic assumptions about the fund manager's performance criteria and investment restrictions; and...

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Main Author: Ilyina, Anna
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2005, 2005
Series:IMF Working Papers; Working Paper
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a Investment Restrictions and Contagion in Emerging Markets  |h electronic resource  |c Anna Ilyina 
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653 |a Institutional Investors 
653 |a Investment Restrictions 
653 |a Contagion 
653 |a Asset Markets 
653 |a Mutual Funds 
653 |a Investors 
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520 |a The objectives of this paper are: (1) to analyze an optimal portfolio rebalancing by a fund manager in response to a "volatility shock" in one of the asset markets, under sufficiently realistic assumptions about the fund manager's performance criteria and investment restrictions; and (2) to analyze the sensitivity of the equilibrium price of an asset to shocks originating in other fundamentally unrelated asset markets for a given mix of common investors. The analysis confirms that certain combinations of investment restrictions (notably short-sale constraints and benchmark-based performance criteria) can create additional transmission mechanisms for propagating shocks across fundamentally unrelated asset markets. The paper also discusses potential implications of recent and on-going changes in the investor base for emerging market securities for the asset price volatility