IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Can Portfolio Diversification increase Systemic Risk? Evidence from the U.S and European Mutual Funds Market

This paper tests the hypothesis that portfolio diversification can increase the threat of systemic financial risk. The paper provides first a theoretical rationale for the possibility that systemic risk may be increased by the proliferation of financial instruments that lead operators to hold increasingly similar portfolios. Secondly, the paper tests the hypothesis that diversification may result in increasing systematic risk, by analyzing the portfolio dynamics of some of the major world open funds.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Main text
Download Restriction: no

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 240.

in new window

Length: 30 pages
Date of creation: 11 Jul 2012
Date of revision: 11 Jul 2012
Handle: RePEc:rtv:ceisrp:240
Contact details of provider: Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Phone: +390672595601
Fax: +39062020687
Web page:

More information through EDIRC

Order Information: Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Web: Email:

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.:

as in new window
  1. De Vries, C.G., 2005. "The simple economics of bank fragility," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 803-825, April.
  2. Stiroh, Kevin J., 2006. "A Portfolio View of Banking with Interest and Noninterest Activities," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1351-1361, August.
  3. Freixas, Xavier & Lóránth, Gyöngyi & Morrison, Alan, 2005. "Regulating Financial Conglomerates," CEPR Discussion Papers 5036, C.E.P.R. Discussion Papers.
  4. Kenneth A. Froot & Jeremy C. Stein, 1996. "Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions: An Integrated Approach," NBER Working Papers 5403, National Bureau of Economic Research, Inc.
  5. Grossman, Richard S., 1994. "The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 654-682, September.
  6. Christian Capuano, 2008. "The Option-iPoD," IMF Working Papers 08/194, International Monetary Fund.
  7. Gianni De Nicolò & Marcella Lucchetta, 2011. "Systemic Risks and the Macroeconomy," NBER Chapters, in: Quantifying Systemic Risk, pages 113-148 National Bureau of Economic Research, Inc.
  8. Franklin Allen & Ana Babus & Elena Carletti, 2010. "Financial Connections and Systemic Risk," NBER Working Papers 16177, National Bureau of Economic Research, Inc.
  9. DeYoung, Robert & Roland, Karin P., 2001. "Product Mix and Earnings Volatility at Commercial Banks: Evidence from a Degree of Total Leverage Model," Journal of Financial Intermediation, Elsevier, vol. 10(1), pages 54-84, January.
  10. P. Hartmann & S. Straetmans & C.G. de Vries, 2001. "Asset Market Linkages in Crisis Periods," Tinbergen Institute Discussion Papers 01-071/2, Tinbergen Institute.
  11. Beverly Hirtle & Kevin J. Stiroh, 2005. "The return to retail and the performance of U.S. banks," Staff Reports 233, Federal Reserve Bank of New York.
  12. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
  13. Cebenoyan, A. Sinan & Strahan, Philip E., 2004. "Risk management, capital structure and lending at banks," Journal of Banking & Finance, Elsevier, vol. 28(1), pages 19-43, January.
  14. Kihlstrom, Richard E & Romer, David & Williams, Steve, 1981. "Risk Aversion with Random Initial Wealth," Econometrica, Econometric Society, vol. 49(4), pages 911-20, June.
  15. Michael D. Bordo & Bruce Mizrach & Anna J. Schwartz, 1995. "Real Versus Pseudo-International Systemic Risk: Some Lessons from History," NBER Working Papers 5371, National Bureau of Economic Research, Inc.
  16. Huang, Xin & Zhou, Hao & Zhu, Haibin, 2012. "Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis," Journal of Financial Stability, Elsevier, vol. 8(3), pages 193-205.
  17. James Y. Yao & Jorge A. Chan-Lau & Donald J. Mathieson, 2002. "Extreme Contagion in Equity Markets," IMF Working Papers 02/98, International Monetary Fund.
  18. Wagner, W.B., 2006. "Diversification at Financial Institutions and Systemic Crises," Discussion Paper 2006-71, Tilburg University, Center for Economic Research.
  19. Baele, Lieven & De Jonghe, Olivier & Vander Vennet, Rudi, 2007. "Does the stock market value bank diversification?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1999-2023, July.
  20. Bartram, Sohnke M. & Brown, Gregory W. & Hund, John E., 2007. "Estimating systemic risk in the international financial system," Journal of Financial Economics, Elsevier, vol. 86(3), pages 835-869, December.
  21. François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
  22. Hartmann, P. & Straetmans, S. & De Vries, C.G., 2001. "Asset Market Linkages in Crisis Periods," Papers 71, Quebec a Montreal - Recherche en gestion.
  23. Alan K. Reichert & Larry D. Wall, 2000. "The potential for portfolio diversification in financial services," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 35-52.
  24. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
  25. Acharya, Viral V & Pedersen, Lasse H & Philippon, Thomas & Richardson, Matthew P, 2012. "Measuring Systemic Risk," CEPR Discussion Papers 8824, C.E.P.R. Discussion Papers.
  26. Wagner, Wolf & Marsh, Ian W., 2006. "Credit risk transfer and financial sector stability," Journal of Financial Stability, Elsevier, vol. 2(2), pages 173-193, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:rtv:ceisrp:240. 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: (Barbara Piazzi)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.