Procyclical asset management and bond risk premia

Arbeitspapier

We use unique institutional securities holdings data to examine the trading behaviour of delegated institutional capital and its impact on bond risk premia. We show that institutional fund managers trade strongly procyclically: they actively move into higher yielding, longer duration and lower rated securities as yields fall and spreads compress, and vice versa. Funds more exposed to negative yields increase their risk-taking more strongly, and this effect is particularly pronounced for those offering explicit minimum return guarantees. Institutional funds' investments have large and persistent price impact in both corporate and sovereign bond markets. We provide evidence that this procyclical behaviour is driven by career concerns among institutional fund managers.

Object Details

• ISBN: 978-92-899-4619-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ESRB Working Paper Series ; No. 116

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Interest Rates: Determination, Term Structure, and Effects
• Subject: Institutional funds ; institutional accounts ; procyclical asset management ; portfolio rebalancing ; price impact ; demand pressures ; asset price volatility ; career concerns

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Barbu, Alexandru ; Fricke, Christoph ; Mönch, Emanuel
• Event: Veröffentlichung
• (who): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (where): Frankfurt a. M.
• (when): 2021

Further information

• DOI: doi:10.2866/216146
• Handle: http://hdl.handle.net/10419/244268
• Last update: 10.03.2025, 11:43 AM CET