Vulnerable asset management? The case of mutual funds

Arbeitspapier

Is the asset management sector a source of financial instability? This paper contributes to the debate by performing a macroprudential stress test in order to quantify systemic risks in the mutual fund sector. For this purpose we include the welldocumented flow-performance relationship as an additional funding shock in the model of Greenwood et al. (2015), where systemic risks arise due to funds' fire sales of commonly held assets. Using data on U.S. equity mutual funds for the period 2003-14, we quantify both fund-specific and aggregate vulnerabilities to fire-sales over time. Our main finding is that the funds' aggregate vulnerability according to this propagation mechanism is generally small. We explore the determinants of individual funds' vulnerability to systemic asset liquidations, highlighting the importance of funds' liquidity transformation. Therefore, regulators should monitor structural vulnerabilities in the fund sector arising through liquidity transformation.

Object Details

• ISBN: 978-3-95729-405-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bundesbank Discussion Paper ; No. 32/2017

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; Portfolio Choice; Investment Decisions ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
• Subject: asset management ; mutual funds ; systemic risk ; fire sales ; liquidity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fricke, Christoph ; Fricke, Daniel
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/170692
• Last update: 10.03.2025, 11:43 AM CET