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Systemic risk of UCITS investment funds and financial market stability tested using MRS model

Author

Listed:
  • Jakša Krišto

    (Faculty of Economics and Business, University of Zagreb)

  • Alen Stojanović

    (Faculty of Economics and Business, University of Zagreb)

  • Hrvoje Filipović

    (European Actuarial Services, Erst & Young Financial-Business Advisors SpA)

Abstract

Systemic risk came into attention in the period of recent financial crisis. Importance of financial intermediation of investment funds is posing to a systemic influence of this sector to a stability of a financial market and therefore whole financial sector. This was proven through investment behavior, fire sales and net outflows from investment funds during the financial crisis. The article is testing systemic risk of whole range of different UCITS investment funds and behavior of these institutions as well as influence on financial market stability. Methodology is based on Markov regime switching model. A conclusion in this article proves existence of systemic risk in returns of analyzed UCITS investment funds and their strong systemic interconnections with returns and volatility on a financial market. Different investment strategy and type of UCITS investment fund shows no resistance to systemic risk according to this research.

Suggested Citation

  • Jakša Krišto & Alen Stojanović & Hrvoje Filipović, 2015. "Systemic risk of UCITS investment funds and financial market stability tested using MRS model," EFZG Working Papers Series 1508, Faculty of Economics and Business, University of Zagreb.
    • Handle: RePEc:zag:wpaper:1508
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    systemic risk; UCITS investment funds; financial stability; interconnectedness; Markov regime switching model;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G01 - Financial Economics - - General - - - Financial Crises
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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