Asset Fire Sales and Purchases and the International Transmission of Funding Shocks





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    • Jotikasthira and Lundblad are at the University of North Carolina, Chapel Hill; Ramadorai is at Saïd Business School, Oxford-Man Institute of Quantitative Finance, and CEPR. A special thanks to Simon Ringrose and Emerging Portfolio Fund Research (EPFR) for providing the data and for numerous helpful discussions, to Matthew Ringgenberg for research assistance, and to the BNP Paribas Hedge Fund Centre at HEC for financial support. We are grateful for comments from Andrew Karolyi (Acting Editor) and two anonymous referees, Viral Acharya, John Campbell, Cam Harvey, Donghui Li, Ludovic Phalippou, Michael Schill, Ajay Shah, and Dimitri Vayanos. Thanks also to seminar participants at BI, the Oxford-Man Institute, Duke, UNC, the Eccles School of Business, Universidade Nova de Lisboa, Queen Mary University of London, Stockholm School of Economics, NC State, Imperial College, University of Piraeus, University of Miami, University of Toronto, the NIPFP-DEA Conference, the Darden International Finance Conference, the American Finance Association Meetings, and the Financial Intermediation Research Society.


We identify a new channel for the transmission of shocks across international markets. Investor flows to funds domiciled in developed markets force significant changes in these funds' emerging market portfolio allocations. These forced trades or “fire sales” affect emerging market equity prices, correlations, and betas, and are related to but distinct from effects arising purely from fund holdings or from overlapping ownership of emerging markets in fund portfolios. A simple model and calibration exercise highlight the importance to these findings of “push” effects from funds' domicile countries and “co-ownership spillover” between markets with overlapping fund ownership.