Synthetic Leverage and Fund Risk-Taking
Daniel Fricke ()
No 126, ESRB Working Paper Series from European Systemic Risk Board
Mutual fund risk-taking via active portfolio rebalancing varies both in the cross-section and over time. In this paper, I show that the same is true for funds’ off-balance sheet risk-taking, even after controlling for on-balance sheet activities. For this purpose, I propose a novel measure of synthetic leverage, which can be estimated based on publicly available information. In the empirical application, I show that German equity funds have increased their risk-taking via synthetic leverage from mid-2015 up until early 2019. In the cross-section, I find that synthetically leveraged funds tend to underperform and display higher levels of fragility. JEL Classification: G11, G23, E44
Keywords: derivatives; leverage; mutual funds; risk-taking; securities lending (search for similar items in EconPapers)
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Working Paper: Synthetic leverage and fund risk-taking (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:2021126
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