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on Financial Markets |
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Issue of 2017‒11‒12
three papers chosen by |
| By: | Fricke, Christoph; Fricke, Daniel |
| Abstract: | Is the asset management sector a source of financial instability? This paper contributes to the debate by performing a macroprudential stress test in order to quantify systemic risks in the mutual fund sector. For this purpose we include the welldocumented flow-performance relationship as an additional funding shock in the model of Greenwood et al. (2015), where systemic risks arise due to funds' fire sales of commonly held assets. Using data on U.S. equity mutual funds for the period 2003-14, we quantify both fund-specific and aggregate vulnerabilities to fire-sales over time. Our main finding is that the funds' aggregate vulnerability according to this propagation mechanism is generally small. We explore the determinants of individual funds' vulnerability to systemic asset liquidations, highlighting the importance of funds' liquidity transformation. Therefore, regulators should monitor structural vulnerabilities in the fund sector arising through liquidity transformation. |
| Keywords: | asset management,mutual funds,systemic risk,fire sales,liquidity |
| JEL: | G10 G11 G23 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:322017&r=fmk |
| By: | Gong Feixue (MIT); Gregory Phelan (Williams College) |
| Abstract: | We study how the ability to use risky debt as collateral in funding markets affects the CDS basis. We use a general equilibrium model with heterogeneous agents, collateralized financial promises, and multiple states of uncertainty. We show that a positive basis emerges when risky assets and their derivative risky debt contracts can be used as collateral for additional financial promises. Additionally, because a risky asset can always serve as collateral for more promises than its derivative debt contracts can, the basis for a risky asset will always differ from the basis for its derivative risky debt. |
| Keywords: | collateral, securitized markets, cash-synthetic basis, credit default swaps, asset prices, credit spreads |
| JEL: | D52 D53 G11 G12 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2017-06&r=fmk |
| By: | Torsten Trimborn; Martin Frank; Stephan Martin |
| Abstract: | In the past decade there has been a growing interest in agent-based econophysical financial market models. The goal of these models is to gain further insights into stylized facts of financial data. We derive the mean field limit of the econophysical model by Cross, Grinfeld, Lamba and Seaman (Physica A, 354) and show that the kinetic limit is a good approximation of the original model. Our kinetic model is able to replicate some of the most prominent stylized facts, namely fat-tails of asset returns, uncorrelated stock price returns and volatility clustering. Interestingly, psychological misperceptions of investors can be accounted to be the origin of the appearance of stylized facts. The mesoscopic model allows us to study the model analytically. We derive steady state solutions and entropy bounds of the deterministic skeleton. These first analytical results already guide us to explanations for the complex dynamics of the model. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.02573&r=fmk |