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Synthetic Leverage and Fund Risk-Taking

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Author
Daniel Fricke
Category
Financial
Date Posted
2021/03/24
Date Retrieved
2022/09/22
Date Revised
Date Written
2021/02/25
Description
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 risk-taking that is not due to portfolio rebalancing (synthetic leverage). For this purpose I propose a novel measure of synthetic leverage that does not require confidential regulatory data. In the empirical application for German equity funds I show that funds overall risk-taking is strongly driven by synthetic leverage. Moreover I find that synthetically leveraged funds underperform and are more fragile.
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JEL Classifications
E44 G11 G23
Keywords
leverage risk-taking derivatives securities lending mutual funds
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Pages
58
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337
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227014
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