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BOK Working Paper No.2017-17, Equity Market Globalization and Portfolio Rebalancing

Author : Kyungkeun Kim, Dongwon Lee
Economic Research Institute(+82-2-759-5396) 2017.06.12 3128

Title : Equity Market Globalization and Portfolio Rebalancing
Authors : Kyungkeun Kim(BOK), Dongwon Lee(University of California, Riverside)




This paper examines how the financial globalization affects international equity mutual funds’ portfolio choices in emerging markets. By examining the monthly holdings of 155 international funds, we first show that these funds actively engage in a rebalancing strategy to maintain their risk preferences upon realization of excess return changes. We also document robust evidence that these funds’ propensity of rebalancing is larger in a country whose equity market is more strongly correlated with the global market. The results help understand how the financial globalization may raise the portfolio risk of the international funds’ equity holdings in emerging economies.