Abstract

http://ssrn.com/abstract=1742065
 
 

References (67)



 
 

Citations (4)



 


 



The Role of Equity Funds in the Financial Crisis Propagation


Harald Hau


University of Geneva - Geneva Finance Research Institute; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Sandy Lai


University of Hong Kong

May 31, 2013

Swiss Finance Institute Research Paper No. 11-35
WFA 2012 Las Vegas Meetings Paper

Abstract:     
The early stage of the 2007-08 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 nonfinancial stocks owned by the respective funds. We document three key empirical findings. First, ownership links to these distressed equity funds lead to large temporary underperformance of the most exposed nonfinancial stocks. Second, distressed equity funds make the better performing stocks in their portfolio the preferred liquidation choice, which implies clustering of fire sale discounts among stocks in the high return quantiles. Third, stocks with higher overall fund ownership generally performed better throughout the crisis.

Number of Pages in PDF File: 45

Keywords: Financial Crisis, Crisis Spillover Effect, Mutual Fund Ownership

JEL Classification: G11, G14, G23


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Date posted: January 17, 2011 ; Last revised: January 20, 2016

Suggested Citation

Hau, Harald and Lai, Sandy, The Role of Equity Funds in the Financial Crisis Propagation (May 31, 2013). Swiss Finance Institute Research Paper No. 11-35 ; WFA 2012 Las Vegas Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1742065 or http://dx.doi.org/10.2139/ssrn.1742065

Contact Information

Harald Hau (Contact Author)
University of Geneva - Geneva Finance Research Institute ( email )
40, Boulevard du Pont d'Arve
CH 1211 Geneva 4
Geneva
Switzerland
Swiss Finance Institute
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
Sandy Lai
University of Hong Kong ( email )
Faculty of Business and Economics
K.K. Leung Building, Pokfulam Road
Hong Kong, Pokfulam HK
Hong Kong
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