The Role of Equity Funds in the Financial Crisis Propagation

Harald Hau and Sandy Lai

Review of Finance, 2017, vol. 21, issue 1, 77-108

Abstract: The early stage of the 2007/2008 financial crisis was marked by large value losses for bank stocks. This article identifies the equity funds most affected by this valuation shock and examines its consequences for the nonfinancial stocks owned by the respective funds. We document three key empirical findings. First, ownership links to these distressed equity funds lead to large temporary underperformance of the most exposed nonfinancial stocks. Second, distressed equity funds make the better performing stocks in their portfolio the preferred liquidation choice. Third, stocks with higher overall fund ownership generally performed better throughout the crisis.

JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (29)

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Related works:
Working Paper: The Role of Equity Funds in the Financial Crisis Propagation (2012)
Working Paper: The Role of Equity Funds in the Financial Crisis Propagation (2011)
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