Abstract
Using a sample of hedge funds and mutual funds, I examine two channels through which asset managers can contribute to systemic risk: the service channel when funds act as liquidity suppliers and the asset liquidation channel when funds act as liquidity demanders. Consistent with the latter channel being more important, I find that contributions to systemic risk increase significantly when hedge funds demand liquidity. Conversely, no such effect exists for mutual funds. A decomposition of systemic risk reveals that the higher level of systemic risk for liquidity-demanding hedge funds can be explained by a higher degree of interconnectedness. Providing further evidence for the asset liquidation channel, I document that systemic risk is considerably larger when hedge funds demand liquidity in times of low funding liquidity and during stock market boom and bust phases.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
