Connected Funds

Konferenzbeitrag

Investment funds are highly connected with each other, but also with the broader financial system. In this paper, we quantify potential vulnerabilities arising from funds' connectedness. While previous work exclusively focused on indirect connections (overlapping asset portfolios) between investment funds, we develop a macroprudential stress test that also includes direct connections (cross-holdings of fund shares). In our application for German investment funds, we find that these direct connections are very important from a financial stability perspective. Our main result is that the German fund sector's aggregate vulnerability can be substantial and tends to increase over time, suggesting that the fund sector can amplify adverse developments in global security markets. We also highlight spillover risks to the broader financial system, since fund sector losses would be largely borne by fund investors from the financial sector. Overall, we make an important step towards a more financial-system-wide view on fund sector vulnerabilities.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2020: Gender Economics

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 ; investment funds ; systemic risk ; fire sales ; liquidity risk ; cross-holdings ; spillover effects

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fricke, Daniel ; Wilke, Hannes
• Event: Veröffentlichung
• (who): ZBW - Leibniz Information Centre for Economics
• (where): Kiel, Hamburg
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/224511
• Last update: 10.03.2025, 11:41 AM CET