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Is leverage driving procyclical investor flows? Assessing investor behaviour in UCITS bond funds

Author

Listed:
  • Molestina Vivar, Luis
  • Wedow, Michael
  • Weistroffer, Christian

Abstract

A recent ECB study shows that leverage is an important driver in investors’ redemption decisions. Regulatory changes to the UCITS framework facilitated the use of derivatives, increasing leverage for some European mutual funds which amplified investors' responsiveness to negative returns in a procyclical manner. JEL Classification: G01, G23, G28

Suggested Citation

  • Molestina Vivar, Luis & Wedow, Michael & Weistroffer, Christian, 2019. "Is leverage driving procyclical investor flows? Assessing investor behaviour in UCITS bond funds," Macroprudential Bulletin, European Central Bank, vol. 9.
    • Handle: RePEc:ecb:ecbmbu:2019:0009:4
    Note: 406092
    as

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    File URL: https://www.ecb.europa.eu//pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu201910_4~a9c04beceb.en.html
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    Cited by:

    1. Cappiello, Lorenzo & Holm-Hadulla, Fédéric & Maddaloni, Angela & Mayordomo, Sergio & Unger, Robert & Arts, Laura & Meme, Nicolas & Asimakopoulos, Ioannis & Migiakis, Petros & Behrens, Caterina & Moura, 2021. "Non-bank financial intermediation in the euro area: implications for monetary policy transmission and key vulnerabilities," Occasional Paper Series 270, European Central Bank.

    More about this item

    Keywords

    bond mutual funds; financial fragility; fund leverage;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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