Connected Funds

80 Pages Posted: 28 Oct 2020 Last revised: 18 Apr 2023

See all articles by Daniel Fricke

Daniel Fricke

Deutsche Bundesbank

Hannes Wilke

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2020

Abstract

Mutual funds often invest in other funds. In this paper, we analyze the economics behind such cross-fund investments and investigate their financial stability implications. Using granular data for the German fund sector, our main findings are that cross-fund investments (a) are becoming increasingly important over time, (b) were heavily liquidated during March 2020, and (c) display measurable contagion effects. Overall, cross-fund investments can elevate structural fund sector vulnerabilities.

Keywords: asset management, investment funds, systemic risk, fire sales, liquidity risk, cross-holdings, contagion

JEL Classification: G10, G11, G23

Suggested Citation

Fricke, Daniel and Wilke, Hannes, Connected Funds (October 7, 2020). Available at SSRN: https://ssrn.com/abstract=3685223 or http://dx.doi.org/10.2139/ssrn.3685223

Daniel Fricke (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Hannes Wilke

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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