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Investors’ Behavior and Mutual Fund Portfolio Allocations in Brazil during the Global Financial Crisis

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  • Fernando M. Linardi

Abstract

I examine the flow and performance of mutual funds in Brazil and their portfolio allocations during the 2008-2009 financial crisis. First, consistent with the empirical literature, I show the sensitivity of fund flows to past performance and the negative impact of large outflows on fund returns, using a large dataset of mutual funds with different investment strategies. Then, I show that mutual funds exposed to deposits and securities issued by small banks suffered significant outflows, due to concerns about the solvency of those banks after the Lehman's default in 2008. Returns of funds exposed to small banks were also negatively affected. Funds adjusted their portfolios by reducing the exposure to deposits of small banks, but when term deposit coverage limits were raised, funds increased that exposure. The results illustrate the potential risks presented by asset management firms to the extent that interconnections with other financial institutions can induce the transmission of shocks across markets.

Suggested Citation

  • Fernando M. Linardi, 2020. "Investors’ Behavior and Mutual Fund Portfolio Allocations in Brazil during the Global Financial Crisis," Working Papers Series 517, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:517
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps517.pdf
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    2. Xu, Xin & Xu, Xiaoguang, 2023. "Monetary policy transmission modeling and policy responses," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).

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