Alexandru Barbu, Christoph Fricke, Emanuel Moench, 04 March 2021

Institutional funds manage the majority of the assets under management of all German investment funds. This column documents that institutional funds act in a strongly procyclical manner, by actively investing in higher-yielding, longer-duration and lower-rated assets as yield spreads compress. The authors show that this intensifies asset price volatility and highlight reasons behind this procyclical investment behaviour.

Andrew Ellul, Chotibhak Jotikasthira, Anastasia Kartasheva, Christian Lundblad, Wolf Wagner, 05 June 2018

Systemic risk analyses have largely focused on the linkages among financial institutions’ funding arrangements, but there are increasing connections between insurers and the rest of the financial system. This column explores how systemic risk can originate from insurers’ business models. In the event of negative asset shocks, insurers’ collective allocation to illiquid bonds leads to an amplification of system-wide fire sales. These dynamics can plausibly erase up to 20-70% of insurers’ aggregate equity capital.

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