Synthetic leverage and fund risk-taking

Arbeitspapier

Mutual fund risk-taking via active portfolio rebalancing varies both in the cross- section and over time. In this paper, I show that the same is true for funds' off- balance sheet risk-taking, even after controlling for on-balance sheet activities. For this purpose, I propose a novel measure of synthetic leverage, which can be estimated based on publicly available information. In the empirical application, I show that German equity funds have increased their risk-taking via synthetic leverage from mid-2015 up until early 2019. In the cross-section, I find that synthetically leveraged funds tend to underperform and display higher levels of fragility.

Object Details

• ISBN: 978-3-95729-817-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 09/2021

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Portfolio Choice; Investment Decisions ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: leverage ; risk-taking ; derivatives ; securities lending ; mutual funds

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fricke, Daniel
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/232072
• Last update: 10.03.2025, 11:45 AM CET