Procyclical Behavior of Institutional Investors During the Recent Financial Crisis; Causes, Impacts, and Challenges
This paper (i) provides evidence on the procyclical investment behavior of major institutional investors during the global financial crisis; (ii) identifies the main factors that could account for such behavior; (iii) discusses the implications of procyclical behavior; and (iv) proposes a framework for sound investment practices for long-term investors. Such procyclical investment behavior is understandable and may be considered rational from an individual institution’s perspective. However, our main conclusion is that behaving in a manner consistent with longterm investing would lead to better long-term, risk-adjusted returns and, importantly, could lessen the potential adverse effects of the procyclical investment behavior of institutional investors on global financial stability.
|Date of creation:||11 Sep 2013|
|Date of revision:|
|Contact details of provider:|| Postal: International Monetary Fund, Washington, DC USA|
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
|Order Information:||Web: http://www.imf.org/external/pubs/pubs/ord_info.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Raddatz, Claudio & Schmukler, Sergio L., 2012.
"On the international transmission of shocks : micro-evidence from mutual fund portfolios,"
Policy Research Working Paper Series
6072, The World Bank.
- Claudio Raddatz & Sergio L. Schmukler, 2011. "On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios," NBER Chapters, in: Global Financial Crisis National Bureau of Economic Research, Inc.
- Raddatz, Claudio & Schmukler, Sergio L., 2012. "On the international transmission of shocks: Micro-evidence from mutual fund portfolios," Journal of International Economics, Elsevier, vol. 88(2), pages 357-374.
- Claudio Raddatz ; & Sergio L. Schmukler, 2012. "On the International Transmission of Shocks: Micro – Evidence From Mutual Fund Portfolios," Working Papers Central Bank of Chile 668, Central Bank of Chile.
- Claudio Raddatz & Sergio L. Schmukler, 2011. "On the International Transmission of Shocks: Micro-Evidence from Mutual Fund Portfolios," NBER Working Papers 17358, National Bureau of Economic Research, Inc.
- Dasgupta, Amil & Prat, Andrea & Verardo, Michela, 2010.
"The Price Impact of Institutional Herding,"
CEPR Discussion Papers
7804, C.E.P.R. Discussion Papers.
- Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2011.
"Gross capital flows : dynamics and crises,"
Policy Research Working Paper Series
5768, The World Bank.
- Broner, Fernando A & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio, 2011. "Gross Capital Flows: Dynamics and Crises," CEPR Discussion Papers 8591, C.E.P.R. Discussion Papers.
- Fernando Broner & Tatiana Didier & Aitor Erce & Sergio L. Schmukler, 2011. "Gross capital flows: dynamics and crises," Working Papers 1039, Banco de España;Working Papers Homepage.
- Fernando Broner & Tatiana Didier & Aitor Erce & Sergio L. Schmukler, 2010. "Gross Capital Flows: Dynamics and Crises," Working Papers 476, Barcelona Graduate School of Economics.
- Fernando Broner & Tatiana Didier & Aitor Erce & Sergio L. Schmukler, 2010. "Gross capital flows: Dynamics and crises," Economics Working Papers 1227, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2012.
- Weiyu Guo & Mark E. Wohar, 2006. "Identifying Regime Changes In Market Volatility," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(1), pages 79-93.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1994.
"The Financial Accelerator and the Flight to Quality,"
NBER Working Papers
4789, National Bureau of Economic Research, Inc.
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
- Simon Gilchrist & Ben S. Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
- Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1994. "The Financial Accelerator and the Flight to Quality," Working Papers 94-24, C.V. Starr Center for Applied Economics, New York University.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
Levine's Working Paper Archive
1193, David K. Levine.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Ian Tower & Gregorio Impavido, 2009. "How the Financial Crisis Affects Pensions and Insurance and Why the Impacts Matter," IMF Working Papers 09/151, International Monetary Fund.
- Sunil Sharma & Sushil Bikhchandani, 2000. "Herd Behavior in Financial Markets; A Review," IMF Working Papers 00/48, International Monetary Fund.
- Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2006.
"Flight-to-Quality or Flight-to-Liquidity? Evidence From the Euro-Area Bond Market,"
NBER Working Papers
12376, National Bureau of Economic Research, Inc.
- Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2009. "Flight-to-Quality or Flight-to-Liquidity? Evidence from the Euro-Area Bond Market," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 925-957, March.
- Palle S. Andersen, 1997. "Forecast errors and financial developments," BIS Working Papers 51, Bank for International Settlements.
- Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, 04.
- Anna Ilyina, 2006. "Portfolio Constraints and Contagion in Emerging Markets," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 1.
- Burton G. Malkiel, 2003. "Passive Investment Strategies and Efficient Markets," European Financial Management, European Financial Management Association, vol. 9(1), pages 1-10.
- de Lis, Santiago Fernández & Herrero, Alicia Garcia, 2010. "Dynamic Provisioning: Some Lessons from Existing Experiences," ADBI Working Papers 218, Asian Development Bank Institute.
When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:13/193. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow)or (Hassan Zaidi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.