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We would like to thank David Ordoobadi and Jorge Roldos for their extensive comments. Any errors or omissions remain our sole responsibility.
Contemporaneous momentum trading is the buying of current winners and selling of current losers, while lagged momentum trading is the buying of past winners and selling of past losers.
A 1996 survey by the Investment Company Institute shows that shareholders of international and global mutual funds, which invest in markets outside the U.S., tend to be more willing to take above-average risk than those not owning such funds.
Lewis (1999) and Karolyi and Stulz (2002), among others, document home bias in the United States. Edison and Warnock (2003), however, find no home bias by U.S. investors towards emerging market equities that are cross-listed on U.S. exchanges, since cross-listings ameliorate the problems associated with asymmetric information.
When mutual funds appreciate in value, new “shares” are created. These new shares are distributed as dividends and capital gains; investors can choose to receive these distributions either in the form of cash or new shares. The reinvestment of new shares increases the fund’s outstanding shares but does not affect its asset base; in other words, there is no flow effect. If investors opt to receive their distribution in cash, shares are redeemed and there is an outflow of cash from the fund. Data that include distributions tend to inflate the actual flow of new money into a fund, by counting shares earned through market appreciation as inflows.
Global equity funds invest primarily in equity securities traded worldwide, including U.S. companies; international equity funds invest primarily in equity securities of companies located outside the U.S..
This index consists of 26 emerging market country indices in Africa, Asia, East Europe, Latin America and the Middle-East.
This index consists of 9 country indices, namely, China, Hong Kong Special Administrative Region, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand.
This index consists of seven emerging market country indices, namely, Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.
Lag selection was determined using log likelihood ratios with four lags. In our view, this number of lags is sufficient to determine the short-term interaction between the variables.