Mutual Fund Investment in Emerging Markets

International mutual funds are key contributors to the globalization of financial markets and one of the main sources of capital flows to emerging economies. Despite their importance in emerging markets, little is known about their investment allocation and strategies. This article provides an overview of mutual fund activity in emerging markets. It describes their size, asset allocation, and country allocation and then focuses on their behavior during crises in emerging markets in the 1990s. It analyzes data at both the fund-manager and fund-investor levels. Due to large redemptions and injections, funds’ flows are not stable. Withdrawals from emerging markets during recent crises were large, which is consistent with the evidence on financial contagion. One of the most remarkable characteristics of the financial crises of the 1990s is the speed at which they spread to other countries. The Mexican crisis in Decem-ber 1994 prompted speculative attacks in Argentina and Brazil during the first quarter of 1995. The 1997 Thai crisis reached Malaysia, Indonesia, and the Philippines within days. Unlike these earlier crises, the 1998 Russian crisis was not confined to regional borders; it spread quickly to countries as distant as Brazi