Fire sales by euro area banks and funds: what is their asset price impact?

Harun Mirza, Diego Moccero (), Spyros Palligkinis and Cosimo Pancaro

No 2491, Working Paper Series from European Central Bank

Abstract: The assets under management of investment funds have soared in recent years, triggering a debate on their possible implications for financial stability. We contribute to this debate assessing the asset price impact of fire sales in a novel partial equilibrium model of euro area funds and banks calibrated over the period between 2008 and 2017. An initial shock to yields causes funds to sell assets to address investor redemptions, while both banks and funds sell assets to keep their leverage constant. These fire sales generate second-round price effects. We find that the potential losses due to the price impact of fire sales have decreased over time for the system. The contribution of funds to this impact is lower than that of banks. However, funds’ relative contribution has risen due to their increased assets under management and banks’ lower leverage and rebalancing towards loans. Should this trend continue, funds will become an increasingly important source of systemic risk. JEL Classification: G1, G21, G23

Keywords: banks; financial contagion; financial stability; fire sales; investment funds; second-round price effects (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-ban and nep-eec
Note: 2657905
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2491~9c8deab24b.en.pdf (application/pdf)

Related works:
Journal Article: Fire sales by euro area banks and funds: What is their asset price impact? (2020)
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:ecb:ecbwps:20202491

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().