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An Lonn Dubh: A Framework for Macroprudential Stress Testing of Investment Funds

Author

Listed:
  • Fiedor, Pawel

    (Central Bank of Ireland)

  • Katsoulis, Petros

    (University of London)

Abstract

We have developed a macroprudential stress testing framework of investment funds. This framework is a tool specifically designed to engage with the Bank’s data, and allows financial stability analysts to rapidly prototype stress tests. This enables the Bank to assess financial stability concerns within the investment funds sector in a targeted and timely manner. Further to the description of the architecture of the framework, we present the results of a baseline stress test, which acts as an initial implementation of the framework. These results show that contagion among investment funds is expected to be limited under normal market conditions. However, under heightened market illiquidity and increased investor sensitivity to fund returns we document the potential for significant spillovers and indirect contagion due to common asset holdings in the investment funds sector domiciled in Ireland.

Suggested Citation

  • Fiedor, Pawel & Katsoulis, Petros, 2019. "An Lonn Dubh: A Framework for Macroprudential Stress Testing of Investment Funds," Financial Stability Notes 2/FS/19, Central Bank of Ireland.
    • Handle: RePEc:cbi:fsnote:2/fs/19
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    References listed on IDEAS

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    Cited by:

    1. Yuki Konaka & Toshitaka Maruyama & Fumitaka Nakamura, 2025. "Exploratory Scenario Analysis Considering the Growing Presence of Domestic and Foreign Investment Funds," Bank of Japan Working Paper Series 25-E-11, Bank of Japan.
    2. Lu, Lanxin & Fiedor, Pawel, 2025. "Risk Preference of Irish-Domiciled Investment Funds," Financial Stability Notes 2/FS/25, Central Bank of Ireland.
    3. David Aikman & Daniel Beale & Adam Brinley-Codd & Anne-Caroline Hüser & Giovanni Covi & Caterina Lepore, 2023. "Macro-Prudential Stress Test Models: A Survey," IMF Working Papers 2023/173, International Monetary Fund.
    4. Gianstefani, Ilaria & Metadjer, Naoise & Moloney, Kitty, 2023. "Interest Rate Sensitivity of Irish Bond Funds," Financial Stability Notes 10/FS/23, Central Bank of Ireland.
    5. Hallissey, Niamh & Killeen, Neill & Wosser, Michael, 2022. "Identifying and assessing systemic risks in Ireland: a review of the Central Bank’s toolkit," Financial Stability Notes 16/FS/22, Central Bank of Ireland.

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