“International Asset Allocations and Capital Flows: The Benchmark Effect”, with Claudio Raddatz and Sergio Schmukler, 2017, Journal of International Economics, vol. 108, pp.413-430.

Featured in All About Finance, The Financial Times, The Institute for International Economic Policy Blog, Voxeu, WB Research Highlights, WB Research Newsletter.

Benchmark indexes have become important in financial markets for portfolio investment. In this paper, we study how international equity and bond market indexes impact asset allocations, capital flows, asset prices, and exchange rates across countries. We use unique monthly micro-level data of benchmark compositions and mutual fund investments during 1996–2014. We find that movements in benchmarks appear to have important effects on equity and bond mutual fund portfolio allocations, including passive and active funds. The effects persist after controlling for time-varying industry-level factors, country-specific effects, and macroeconomic fundamentals. Changes in benchmarks not only impact asset allocations, but also capital flows, abnormal returns in aggregate stock and bond prices, and exchange rates. These systemic effects occur not just when benchmark changes are announced, but also later, when they become effective. By impacting country allocations, benchmarks explain apparently counterintuitive movements in capital flows and asset prices, as well as contagion effects.


“Financial Globalization in Emerging Economies: Much Ado About Nothing?”, with Eduardo Levy Yeyati, 2014, Economia, vol. 14 (20), pp. 91-131.

Featured in Voxeu.

Financial globalization (FG), understood as the deepening of cross-border capital flows and asset holdings, has become increasingly relevant for the developing world for a number of reasons, including the consequences of its changing composition on countries’ balance sheets, its role in the transmission of global financial shocks, its benefits in terms of financial development, international risk, and business cycle smoothing, and the implication of all of the above for macroeconomic and prudential policies. In this paper, we focus on these issues from an empirical perspective, building on, updating, and refocusing the existing literature to characterize the evolution and implications of financial globalization in emerging economies.


“Emerging Economies in the 2000s: Real Decoupling and Financial Recoupling”, with Eduardo Levy Yeyati, 2012, Journal of International Money and Finance, vol. 31 (8), pp. 2102-2126.

Featured in Voxeu.

The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized selloff during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for EM, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies yield no conclusive result, a closer look at global emerging market equity and bond funds show that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.

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