Country funds and the role of international equity flows in pricing and in premiums and discounts

This paper investigates the relationships between international equity flows and country fund pricing for 35 closed-end single country funds, and evaluates the impact of the Asian crisis on the relationships. Basic findings include: (1) strong relationships are identified between fund returns and international equity flows; (2) financial crises amplify the impact of international equity flows, via both mean and volatility measures, on fund returns and on premiums/discounts for emerging Asian market funds; (3) Asian crisis effects are limited to emerging Asian market funds; and (4) U.S. investors, relative to local investors, overreact to the Asian crisis. Thus, the evidence of international equity flow destabilization is strongly supported under the information dissemination hypothesis.