Procyclical Asset Management and Bond Risk Premia

70 Pages Posted: 18 Aug 2020 Last revised: 1 Mar 2021

See all articles by Alexandru Barbu

Alexandru Barbu

INSEAD; London Business School

Christoph Fricke

European Systemic Risk Board; Deutsche Bundesbank

Emanuel Moench

Frankfurt School of Finance & Management

Multiple version iconThere are 3 versions of this paper

Date Written: August 2020


We use unique institutional securities holdings data to examine the trading behaviour of delegated institutional capital and its impact on bond risk premia. We show that institutional fund managers trade strongly procyclically: they actively move into higher yielding, longer duration and lower rated securities as yields fall and spreads compress, and vice versa. Funds more exposed to negative yields increase their risk-taking more strongly, and this effect is particularly pronounced for those offering explicit minimum return guarantees. Institutional funds' investments have large and persistent price impact in both corporate and sovereign bond markets. We provide evidence that this procyclical behaviour is driven by career concerns among institutional fund managers.

JEL Classification: E43, G11, G23

Suggested Citation

Barbu, Alexandru and Fricke, Christoph and Moench, Emanuel, Procyclical Asset Management and Bond Risk Premia (August 2020). CEPR Discussion Paper No. DP15123, Available at SSRN:

Alexandru Barbu (Contact Author)

INSEAD ( email )

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Christoph Fricke

European Systemic Risk Board ( email )

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Deutsche Bundesbank ( email )

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Emanuel Moench

Frankfurt School of Finance & Management ( email )

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Frankfurt am Main, 60322

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