Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963311 | Journal of International Economics | 2006 | 28 Pages |
Abstract
The impact of past gains and losses on international investors' risk aversion is an important factor in the propagation of financial shocks across countries. We first present a stylized model illustrating how changes in investors' risk aversion affect portfolio decisions and stock prices. We then examine empirically the behavior of international mutual funds. When funds' returns are below average, they reduce their exposure to countries in which they were overweight and vice versa. An index of āfinancial interdependenceā that reflects the extent to which countries share overexposed funds helps explain the pattern of stock market comovement across countries and the pattern of contagion during crises.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Fernando A. Broner, R. Gaston Gelos, Carmen M. Reinhart,