When the Panic Broke Out: Covid-19 and Investment Funds' Portfolio Rebalancing Around the World

To contribute to the understanding of investment funds' (IFs) behaviour, the paper exploits the exogenous shock of the COVID-19 pandemic and analyses more than 12 million security sales and purchases during the first four months of 2020 by over 20,000 IFs from more than 40 national jurisdictions and investing in more than 100 economies and 20 industries. Our estimates reveal that, when the emergency strikes, IFs do not sell indiscriminately but divest from assets considered the most vulnerable at the moment, that is, those issued by more COVID-affected countries and industries. Our results also show several dimensions of heterogeneity according to the pandemic outbreak phase, asset type, IF category and performance, extent of unitholders' outflows, and nationality of IFs. Our results, on the one hand, provide new evidence on the intrinsic fragility of IFs and the connection between their choices and fire sales, but, on the other, they also show that IF industry includes heterogeneous institutions that behave very differently. Finally, our results document that monetary policy measures have a reassuring effect also for IFs, which corroborates recent evidence on a non-bank financial institution channel of unconventional monetary policies.

• Publication year

  2021

• Venue

  Social Science Research Network

• Publication date

  Unknown publication date

• Fields of study

  Medicine, Business, Economics

• Identifiers
  DOI 10.2139/ssrn.3896291
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

• Business disruptions from social distancing

  2020cited by this paper
• The Fed Takes on Corporate Credit Risk: An Analysis of the Efficacy of the SMCCF

  2020cited by this paper
• Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets

  2020cited by this paper
• Investor Flows and Fragility in Corporate Bond Funds

  2017cited by this paper
• Re: Consultative Document: Proposed Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities

  2016cited by this paper
• Investors' Horizons and the Amplification of Market Shocks

  2013cited by this paper
• The role of institutional investors in propagating the crisis of 2007-2008.

  2012cited by this paper
• Payoff complementarities and financial fragility: Evidence from mutual fund outflows $

  2010cited by this paper
• Sophisticated Investors and Market Efficiency

  2009cited by this paper

• The micro-determinants of portfolio allocation shifts in mutual funds: Evidence from machine learning models

  2025cites this paper
• Central banks’ corporate asset purchase programmes and risk-taking by bond funds in the aftermath of market stress

  2024cites this paper
• The Case for a Positive Euro Area Inflation Target: Evidence from France, Germany and Italy

  2022cites this paper
• Monetary policy and portfolio rebalancing: Evidence from European equity mutual funds

  2022cites this paper
• Temi di discussione after the Covid-19

  2022cites this paper
• Global Fund Flows and Emerging Market Tail Risk

  2022influential citation
• Business Cycle Synchronization or Business Cycle Transmission? The Effect of the German Slowdown on the Italian Economy

  2021cites this paper
• Revisiting the Case for a Fiscal Union: the Federal Fiscal Channel of Downside-Risk Sharing in the United States

  2021cites this paper