The Role of Equity Funds in the Financial Crisis Propagation

Harald Hau and Sandy Lai

No 8819, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The early stage of the recent financial crisis was marked by large value losses for bank stocks. This paper identifies the equity funds most affected by this valuation shock and examines its consequences for the non-financial stocks owned by the respective funds. We find that (i) ownership links to these 'distressed equity funds' lead to large underperformance of the most exposed non-financial stocks, and in aggregate this contributes an additional 10.9% to the overall stock market downturn; (ii) distressed fire sales and the associated price discounts are concentrated among those exposed stocks which perform relatively well; and (iii) stocks with higher fund ownership generally performed much better throughout the crisis.

Keywords: Financial crisis propagation; Fire sales; Mutual funds (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2012-02
New Economics Papers: this item is included in nep-ban and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The Role of Equity Funds in the Financial Crisis Propagation (2017)
Working Paper: The Role of Equity Funds in the Financial Crisis Propagation (2011)
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