Equity Funds and Derivatives: Evidence from Linked Fund-Trade Data

ESMA Working Paper, No. 2, 2021

51 Pages Posted: 18 Feb 2021

See all articles by Daniel Bias

Daniel Bias

Owen Graduate School of Management at Vanderbilt University

Claudia Guagliano

European Securities and Markets Authority (ESMA)

Martin Haferkorn

Goethe University Frankfurt Faculty of Economics and Business Administration; European Securities and Markets Authority (ESMA)

Michael Haimann

Technische Universität München (TUM)

Christoph Kaserer

Technische Universität München (TUM)

Date Written: January 25, 2021

Abstract

Building on data collected under the EMIR framework, we provide new insight into the type of derivatives that are traded by UCITS equity funds, why some of them trade derivatives whilst others do not, what makes some more active traders and to what extend the trading in derivatives is a reaction to daily changes in the market. 46% of UCITS equity funds are trading derivatives. Three types of contracts account for 78% of funds’ derivatives trades: currency forwards, equity futures, and equity options. We find that the derivatives trading behavior is related to the fund-family affiliation and the investment strategy. Over time, cash inflows as well as currency risk seem to have a significant influence, which suggests that derivatives are used for transaction costs or risk reduction purposes.

Keywords: UCITS funds, derivatives trading, fund families, flows, risks

JEL Classification: G10, G20, G23

Suggested Citation

Bias, Daniel and Guagliano, Claudia and Haferkorn, Martin and Haferkorn, Martin and Haimann, Michael and Kaserer, Christoph, Equity Funds and Derivatives: Evidence from Linked Fund-Trade Data (January 25, 2021). ESMA Working Paper, No. 2, 2021 , Available at SSRN: https://ssrn.com/abstract=3773062 or http://dx.doi.org/10.2139/ssrn.3773062

Daniel Bias

Owen Graduate School of Management at Vanderbilt University ( email )

2301 Vanderbilt Place
Nashville, TN 37240
United States

Claudia Guagliano

European Securities and Markets Authority (ESMA) ( email )

Paris, 75007
France

Martin Haferkorn

Goethe University Frankfurt Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

European Securities and Markets Authority (ESMA) ( email )

201-203 Rue de Bercy
​Paris, 75012
France

Michael Haimann

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

Christoph Kaserer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

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