Investment Fund Risk: The Tale in the Tails

Frances Shaw and Peter Dunne
Additional contact information
Frances Shaw: Central Bank of Ireland

No 01/RT/17, Research Technical Papers from Central Bank of Ireland

Abstract: Efforts to develop risk assessment metrics for the non-bank financial sector have been given impetus following the post-crisis broadening of the IMF's Financial Stability Assessments and recent efforts by the Financial Stability Board to address structural vulnerabilities from asset management activities. Using a novel database of investment funds reporting in Ireland, we employ Marginal Expected Shortfall metrics to capture investment fund exposures to pervasive industry-wide tail events. We reveal the primary fund sectors most responsible for widespread extreme return shortfalls. Fund attributes are then used to explain (mostly) the cross-sectional variation in marginal expected shortfall using panel regression techniques. We find that leverage, derivative usage, redemption rates, cash holdings, openness and retail investor focus are important factors that consistently explain the variation in fund-specific sensitivity to pervasive tail risk. Finally, we provide new evidence that ex ante exposure to pervasive extreme negative returns explains significantly more of the risk premium implicit in ex post returns than traditional beta.

Keywords: Investment Funds; systemic risk; marginal expected shortfall. (search for similar items in EconPapers)
JEL-codes: G15 G23 G28 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://centralbank.ie/docs/default-source/publica ... e-tails.pdf?sfvrsn=6 (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:cbi:wpaper:01/rt/17

Access Statistics for this paper

More papers in Research Technical Papers from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().