The Role of Mature Market Mutual Funds in Emerging Markets

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.Emerging markets;External debt;Stock markets;mutual funds, investors, bonds, bond, bond funds, fixed income, stock market, money market, institutional investors, stock market capitalization, foreign investors, financial stability, bond markets, investment restrictions, bond index, stock exchanges, emerging market bonds, financial assets, equity securities, international capital markets, cash flows, local capital markets, local bond, emerging market bond, financial markets, international capital, equity markets, market bond, investment companies, money market funds, investor protection, international financial markets, term bonds, hedge, foreign ownership, derivatives markets, financial institutions, outstanding debt, investment criteria, unit investment trust, foreign investment, stock exchange, government bonds, stock market cycles, money market fund, global bond, foreign equity, short-term bonds, investment returns, investment strategies, emerging markets stock, bond market, local bond market, financial market, equity market, international investors, international bond, liquid markets