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Investors’ behavior and mutual fund portfolio allocations in Brazil during the global financial crisis

Fernando M. Linardi

Latin American Journal of Central Banking (previously Monetaria), 2020, vol. 1, issue 1

Abstract: In this paper, I examine the flow and performance of mutual funds in Brazil and their portfolio allocations during the global financial crisis. First, I show that mutual funds exposed to deposits and securities issued by small banks suffered significant outflows, due to the increased risk aversion following Lehman’s default in 2008. The returns of funds exposed to small banks were also negatively affected. Funds adjusted their portfolios by reducing their exposures to deposits of small banks, but they increased risk taking when term deposit coverage limits were raised. The distress among small banks also generated negative spillover to the portfolio management business of banks, reducing their numbers of investors. The results illustrate the potential risks to financial stability, to the extent that interconnections among funds and banks can induce the transmission of shocks across markets.

Keywords: Mutual fund flows; Financial crisis; Portfolio choice (search for similar items in EconPapers)
JEL-codes: G01 G11 G21 G23 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.latcb.2020.100007

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Latin American Journal of Central Banking (previously Monetaria) is currently edited by Manuel Ramos-Francia

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