The objective of this project is to empirically examine the impact of country risk on the pricing of country funds and their premiums under barriers to international investment. Specifically, this project expects to provide a comprehensive analysis of effects of sovereign rating changes on country fund premiums, prices, and NAVs using a broad set of country funds. Prior research on ‘country funds premiums puzzle’ has focused on direct and indirect investment barriers and employed some proxy measures for international capital flows, liquidity risk, and investors’ sentiment. However, based on the international asset pricing model, the expected returns of securities should determined jointly by both international and national risk premiums in mildly segmented international capital markets. Hence, unlike previous studies, this project purposes to explore the relationships between country funds premiums and sovereign credit ratings changes. This project should have some contributions to the literature on country funds.