The Role of Equity Funds in the Financial Crisis Propagation
AbstractThe early stage of the recent financial crisis was marked by large value losses for bank stocks. This paper identifies the equity funds most affected by this valuation shock and examines its consequences for the non-financial stocks owned by the respective funds. We find that (i) ownership links to these 'distressed equity funds' lead to large underperformance of the most exposed non-financial stocks, and in aggregate this contributes an additional 10.9% to the overall stock market downturn; (ii) distressed fire sales and the associated price discounts are concentrated among those exposed stocks which perform relatively well; and (iii) stocks with higher fund ownership generally performed much better throughout the crisis.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8819.
Date of creation: Feb 2012
Date of revision:
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Other versions of this item:
- Harald HAU & Sandy LAI, . "The Role of Equity Funds in the Financial Crisis Propagation," Swiss Finance Institute Research Paper Series 11-35, Swiss Finance Institute.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-BAN-2012-03-28 (Banking)
- NEP-FMK-2012-03-28 (Financial Markets)
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- Stavros Peristiani & Vanessa Savino, 2011. "Are credit default swaps associated with higher corporate defaults?," Staff Reports 494, Federal Reserve Bank of New York.
- Hau, Harald & Lai, Sandy, 2012.
"Real Effects of Stock Underpricing,"
CEPR Discussion Papers
8820, C.E.P.R. Discussion Papers.
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