Synthetic leverage and fund risk-taking

Daniel Fricke ()

No 09/2021, Discussion Papers from Deutsche Bundesbank

Abstract: 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.

Keywords: leverage; risk-taking; derivatives; securities lending; mutual funds (search for similar items in EconPapers)
JEL-codes: E44 G11 G23 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-rmg
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Citations: View citations in EconPapers (3)

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https://www.econstor.eu/bitstream/10419/232072/1/1752365429.pdf (application/pdf)

Related works:
Working Paper: Synthetic Leverage and Fund Risk-Taking (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:092021

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