Procyclical asset management and bond risk premia

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

No 38/2020, Discussion Papers from Deutsche Bundesbank

Abstract: Institutional funds have concentrated ownership by a few institutional investors, infrequent outflows and essentially no leverage. Yet using unique granular data on the bond holdings of institutional funds, we show that their trading behavior is strongly procyclical: they actively move into higher yielding, longer duration and lower rated securities in response to lower in-terest rates, and vice versa. Institutional funds' risk-taking increases when interest rates turn negative, particularly in funds with explicit minimum return guarantees. Their trading has large and persistent price impact. We provide evidence that this procyclical behavior is driven by career concerns among institutional fund managers.

Keywords: institutional funds; institutional accounts; procyclical asset management; portfolio 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
New Economics Papers: this item is included in nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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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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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:382020

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