Volume, Volatility, and Country-Fund Discounts: The Effects of Asymmetric Investor Risks

Existing studies of country funds utilize return measures and do not consider the effects of investor risk specifically. We examine the time-varying asymmetric investor risk hypothesis for country fund premiums and find that volume and volatility in both the U.S. and foreign markets are generally important. While the U.S. volume and volatility are more important than similar foreign variables on the whole, there exists significant regional heterogeneity, and foreign variables including exchange rate volatility are important for a significant number of country funds. Fund premiums are also affected by the emerging market financial crises. However, country funds that experience the crisis tend to present premiums in the U.S. market. JEL Classification: G1, F3