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Procyclical asset management and bond risk premia

Alexandru Barbu, Christoph Fricke and Emanuel Moench

No 116, ESRB Working Paper Series from European Systemic Risk Board

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. JEL Classification: G11, G23, E43

Keywords: asset price volatility; career concerns; demand pressures; institutional accounts; institutional funds; portfolio rebalancing; price impact; procyclical asset management (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (2)

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Working Paper: Procyclical Asset Management and Bond Risk Premia (2020) Downloads
Working Paper: Procyclical asset management and bond risk premia (2020) Downloads
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