Procyclical Behavior of Institutional Investors During the Recent Financial Crisis: Causes, Impacts, and Challenges
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Summary:
This paper (i) provides evidence on the procyclical investment behavior of major institutional investors during the global financial crisis; (ii) identifies the main factors that could account for such behavior; (iii) discusses the implications of procyclical behavior; and (iv) proposes a framework for sound investment practices for long-term investors. Such procyclical investment behavior is understandable and may be considered rational from an individual institution’s perspective. However, our main conclusion is that behaving in a manner consistent with longterm investing would lead to better long-term, risk-adjusted returns and, importantly, could lessen the potential adverse effects of the procyclical investment behavior of institutional investors on global financial stability.
Series:
Working Paper No. 2013/193
Subject:
Asset allocation Asset and liability management Expenditure Financial crises Financial institutions Liquidity Mutual funds Pension spending
English
Publication Date:
September 11, 2013
ISBN/ISSN:
9781484336083/1018-5941
Stock No:
WPIEA2013193
Pages:
53
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