Procyclical Asset Management and Bond Risk Premia

Alexandru Barbu, Christoph Fricke and ,
Authors registered in the RePEc Author Service: Emanuel Moench

No 15123, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use unique institutional securities holdings data to examine the trading behaviour of delegated institutional capital and its impact on bond risk premia. We show that institutional fund managers trade strongly procyclically: they actively move into higher yielding, longer duration and lower rated securities as yields fall and spreads compress, and vice versa. Funds more exposed to negative yields increase their risk-taking more strongly, and this effect is particularly pronounced for those offering explicit minimum return guarantees. Institutional funds' investments have large and persistent price impact in both corporate and sovereign bond markets. We provide evidence that this procyclical behaviour is driven by career concerns among institutional fund managers.

Keywords: Institutional funds; Institutional accounts; Procyclical asset management; Port- folio rebalancing; Price impact; Demand pressures; Asset price volatility; Career concerns (search for similar items in EconPapers)
JEL-codes: E43 G11 G23 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Procyclical asset management and bond risk premia (2021)
Working Paper: Procyclical asset management and bond risk premia (2020)
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