Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229105
Authors: 
Mirza, Harun
Moccero, Diego
Palligkinis, Spyros
Pancaro, Cosimo
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2491
Abstract: 
The assets under management of investment funds have soared in recent years, triggering a debate on their possible implications for financial stability. We contribute to this debate assessing the asset price impact of fire sales in a novel partial equilibrium model of euro area funds and banks calibrated over the period between 2008 and 2017. An initial shock to yields causes funds to sell assets to address investor redemptions, while both banks and funds sell assets to keep their leverage constant. These fire sales generate second-round price effects. We find that the potential losses due to the price impact of fire sales have decreased over time for the system. The contribution of funds to this impact is lower than that of banks. However, funds' relative contribution has risen due to their increased assets under management and banks' lower leverage and rebalancing towards loans. Should this trend continue, funds will become an increasingly important source of systemic risk.
Subjects: 
Investment funds
banks
fire sales
second-round price effects
financial contagion
financial stability
JEL: 
G1
G21
G23
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4408-3
Document Type: 
Working Paper

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