Synthetic Leverage and Fund Risk-Taking
See all articles by Daniel Fricke
Daniel Fricke
Deutsche Bundesbank; University College London; London School of Economics & Political Science (LSE) - Systemic Risk Centre
There are 3 versions of this paper
Number of pages: 58 Posted: 24 Mar 2021 Last Revised: 22 Sep 2022
Number of pages: 63 Posted: 30 Mar 2021
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ESRB: Working Paper Series 2021/126
Number of pages: 60 Posted: 16 Sep 2021
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: E44, G11, G23
Fricke, Daniel, Synthetic Leverage and Fund Risk-Taking (2021). Deutsche Bundesbank Discussion Paper No. 09/2021, Available at SSRN: https://ssrn.com/abstract=3813662 or http://dx.doi.org/10.2139/ssrn.3813662
Daniel Fricke (Contact Author)
University College London ( email )
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London School of Economics & Political Science (LSE) - Systemic Risk Centre
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