Archive for May 21st, 2020

Burned by leverage? Flows and fragility in bond mutual funds

May 21, 2020

Luis Molestina Vivar, Michael Wedow and Christian Weistroffer of ECB in this WP:

Does leverage drive investor flows in bond mutual funds? Leverage can increase fund returns in good times, but it can also magnify investors’ losses and their response to bad performance. We study bond fund flows to provide new evidence for the link between mutual fund leverage and financial fragility. We find that outflows are greater in leveraged funds during stressed periods and after bad performance, compared with unleveraged funds. We provide supporting
evidence that leverage exacerbates the negative externality in investors’ redemption decisions.

In this regard, we find that fund managers in leveraged funds react more procyclically to net outflows compared with fund managers in unleveraged funds. Such procyclical security sales in leveraged funds may increase investors’ first-mover advantages and their response to bad performance. These findings suggest that leverage amplifies fragility in the bond mutual fund sector.

Applies to the crisis in India’s bond MFs as well.

In crisis, we pray: Religiosity and the Covid-19 pandemic

May 21, 2020

Jeanet Sinding Bentzen of University of Copenhagen in this paper:

In times of crisis, humans have a tendency to turn to religion for comfort and explanation. The 2020 COVID-19 pandemic is no exception. Using daily data on Google searches for 95 countries, this research demonstrates that the COVID-19 crisis has increased Google searches for prayer (relative to all Google searches) to the highest level ever recorded. More than half of the world population had prayed to end the coronavirus. The rise amounts to 50% of the previous level of prayer searches or a quarter of the fall in Google searches for flights,  which dropped dramatically due to the closure of most international air transport. Prayer searches rose at all levels of income, inequality, and insecurity, but not for the 10% least religious countries. The increase is not merely a substitute for services in the physical churches that closed down to limit the spread of the virus. Instead, the rise is due to an intensified demand for religion:

We pray to cope with adversity.

 

The drivers of cyber risk

May 21, 2020

Iñaki Aldasoro, Leonardo Gambacorta, Paolo Giudici and Thomas Leach of BIS in this research:

Cyber incidents are becoming more sophisticated and their costs difficult to quantify. Using a unique database of more than 100,000 cyber events across sectors, we document the characteristics of cyber incidents. Cyber costs are higher for larger firms and for incidents that impact several organisations simultaneously. The financial sector is exposed to a larger number of cyber attacks but suffers lower costs, on average, thanks to proportionately greater investment in information technology (IT) security. The use of cloud services is associated with lower costs, especially when cyber incidents are relatively small. As cloud providers become systemically important, cloud dependence is likely to increase tail risks. Crypto-related activities, which are largely unregulated, are particularly vulnerable to cyber attacks.

 

17 May 2020: Bank for International Settlements turns 90!

May 21, 2020

BIS turned 90 recently.

In this podcast, Piet Clement explains the origins of the BIS and the roles it has played since opening on 17 May 1930.

Taking the historical city travel guide to Rome in 1st century AD

May 21, 2020

Another super post by British Museum on historical travel to Rome . There was an earlier post on historical travel to city of Nineveh.

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