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Cyclical Investment Behavior of Investment Funds: Its Heterogeneity and Drivers

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  • Milan Szabo

Abstract

This study explores the effect of security returns on subsequent sales and purchases of securities by investment funds, and examines the potential of fund-related characteristics to amplify the elevated and procyclical sales of under-performing securities by funds. The study finds significant variations in investment behavior across different asset classes using unique data on trades by retail funds and non-retail hedge funds. The study then demonstrates how the financial fragility of funds increases their sensitivity to decreasing security returns, leading to increased sales of under-performing securities by funds.

Suggested Citation

  • Milan Szabo, 2023. "Cyclical Investment Behavior of Investment Funds: Its Heterogeneity and Drivers," Working Papers 2023/5, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2023/5
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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2023_05.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset management; emerging markets; externalities; interconnectedness; investment behavior;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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