Macroprudential stress testing: A proposal for the Luxembourg investment fund sector

Kang-Soek Lee ()

No 141, BCL working papers from Central Bank of Luxembourg

Abstract: This paper assesses ‘aggregate vulnerability’, a measure of systemic risk, in the investment fund sector of Luxembourg by implementing a macroprudential stress testing model. While based on the proposal by Fricke and Fricke (2017), this paper focuses on the calibration of key parameters such as the flow-performance sensitivity and price impacts that are included in the model to capture the so-called ‘second-round effects’ of an initial adverse shock to funds’ returns. According to the empirical results, limited degrees of vulnerability were found for the main fund categories such as equity funds, bond funds and mixed funds. This implies that the investment fund sector in Luxembourg does not raise any particular concern for financial stability as of November 2019. However, since the stress test was performed against a background of increased risk of a reversal in global risk premia, continued monitoring of the sector is warranted.

Keywords: investment funds; macroprudential stress test; flow-performance sensitivity; price impact; fire sales; systemic risk (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-03
New Economics Papers: this item is included in nep-cba
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bcl.lu/en/publications/Working-papers/141/BCLWP141.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp141

Access Statistics for this paper

More papers in BCL working papers from Central Bank of Luxembourg Contact information at EDIRC.
Bibliographic data for series maintained by ().