Abstract

http://ssrn.com/abstract=1742065
 
 

References (67)



 
 

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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 non-financial stocks owned by the respective funds. We find that (i) ownership links to these "distressed equity funds" lead to large underperformance of the most exposed non-financial stocks, and in aggregate this contributes an additional 10.5% to the overall stock market downturn; (ii) distressed fire sales and the associated price discounts are concentrated among those exposed stocks that perform relatively well; and (iii) stocks with higher fund ownership generally performed much better throughout the crisis.

Number of Pages in PDF File: 46

Keywords: Financial Crisis Propagation, Fire Sales, Mutual Funds

JEL Classification: G11, G14, G23

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Date posted: January 17, 2011 ; Last revised: February 6, 2014

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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