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Racing to the exits: International transmissions of funding shocks during the Federal Reserve's taper experiment

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  • Karolyi, G. Andrew
  • McLaren, Kirsty J.

Abstract

In May 2013, the U.S. Federal Reserve announced the beginning of the end of the program of monthly security purchases, the so-called “tapering.” The announcement was associated with large investor outflows from EM funds and large fund re-allocations across countries and stocks. Unexpected flow-implied fund upward (downward) allocations are associated with positive (negative) individual security returns following the announcement. The effect is pronounced in EM stocks that had positive cumulative abnormal returns around earlier Federal Reserve asset-purchase announcements leading up to the taper. It is concentrated in more liquid, smaller capitalization stocks and is stronger for forced trades among funds with more active country bets.

Suggested Citation

  • Karolyi, G. Andrew & McLaren, Kirsty J., 2017. "Racing to the exits: International transmissions of funding shocks during the Federal Reserve's taper experiment," Emerging Markets Review, Elsevier, vol. 32(C), pages 96-115.
    • Handle: RePEc:eee:ememar:v:32:y:2017:i:c:p:96-115
    DOI: 10.1016/j.ememar.2017.05.009
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    Cited by:

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    2. Das, Sanjiv R. & Kalimipalli, Madhu & Nayak, Subhankar, 2022. "Banking networks, systemic risk, and the credit cycle in emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    3. Abuelfadl, Moustafa & Yamani, Ehab, 2021. "Currency news and international bond markets," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    4. Schmeling, Maik & Wagner, Christian, 2019. "Does Central Bank Tone Move Asset Prices?," CEPR Discussion Papers 13490, C.E.P.R. Discussion Papers.
    5. Ozcan Ceylan, 2023. "Analysis of Dynamic Connectedness among Sovereign CDS Premia," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 9(1), pages 33-47, June.
    6. David Ng & Ilhyock Shim & Jose Maria Vidal Pastor, 2019. "The role of different institutional investors in Asia-Pacific bond markets during the taper tantrum," BIS Papers chapters, in: Bank for International Settlements (ed.), Asia-Pacific fixed income markets: evolving structure, participation and pricing, volume 102, pages 113-142, Bank for International Settlements.

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    More about this item

    Keywords

    Mutual funds; International capital flows; Emerging markets; Monetary policy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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