CNB Research Seminar "From Brussels to Bangkok: How Investment Funds Transmit Financial Spillovers"

Prague, 27 March 2026

Georgios Georgiadis (ECB)

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Georgios Georgiadis works as Principal Economist in the Directorate General International and European Relations of the European Central Bank. He holds a doctorate degree in economics from Goethe University Frankfurt. His research focuses on international macroeconomics and finance.

From Brussels to Bangkok: How Investment Funds Transmit Financial Spillovers (abstract)

We explore whether investment funds transmit spillovers from local shocks to financial markets in other economies. As a laboratory we consider shocks to financial-market beliefs about the probability of a rare, euro-related disaster and their spillovers to sovereign debt markets in emerging market economy (EME) sovereign debt markets. This setting is empirically relevant, as the share of portfolio debt in EME cross-border flows has continuously risen over the last decades, the lion’s share of it is accounted for by sovereign debt and held by investment funds domiciled in Europe. Analysing proprietary security-level holdings data over the period from 2014 to 2023, we find that investment funds strongly shed EME sovereign debt in response to euro disaster risk shocks. Markets with greater investment-fund presence exhibit considerably larger price spillovers. The main driver of this sell-off is the need to generate liquidity to meet investor redemption demands rather than portfolio rebalancing. Foreign investment funds are the only investor group that sheds sovereign debt, while domestic EME investors absorb. Taken together, our findings suggest that due to a flighty investor base investment funds are powerful transmitters of spillovers from local shocks across global financial markets.