Emerging market capital flows: the role of fund manager portfolio allocation

We exploit individual security holdings data for global mutual funds to distinguish between two reasons why a fund's holdings of emerging market economy (EME) bonds might change: (i) the amount invested in the fund changes and (ii) the fund manager changes portfolio allocations. We find that funds' responsiveness to global macroeconomic conditions, ''push factors'', is explained by investor flow decisions. Conversely, funds' responsiveness to local macroeconomic conditions, ''pull factors'', is explained by manager reallocation decisions. We also identify other institutional factors which impact reallocation decisions: their leverage, their benchmark, and risk appetite (funds reallocate towards safer EMEs when global risk increases).