Systemic Risk and Mutual Fund

Document Type : Research Paper

Authors

1 associate /Tehran University

2 associate /Qom university

3 researcher/ ITSR

Abstract

The main purpose of this article is to study the transmission of systemic risk from a particular mutual fund to the rest of the mutual funds in Iran Capital Market. Applying the multivariate GARCH model with the Dynamic and constant Conditional Correlation method, we examine the correlation structure of daily net return of the mutual fund portfolios during the period from March 21st, 2011 to March 21nd, 2020. We find the hypothesis of the existence of systemic risk in Iran Capital Market cannot be rejected and the results indicate that the mutual funds are subject to the systemic risk. According to the estimation results of the model, in which Delta δ is significantly positive), it is expected that the conditional correlation among mutual funds to increases following the initial shock in their return series. Also, since the significant Gama coefficient is less than one but very close to it , we could expect long-lasting shocks and persistent uncertainties. The study suggests some managerial solutions for developing a prudential regulation policy to prevent and control systemic risk and to mitigate its effect. Such solution necessitates the establishment of institutions crucial for capital market development, including rating agencies, asset management companies, investment adviser Institutes, and regulation and regulatory agencies as well.

Keywords

Main Subjects

References

  1. Abrishami, H., Mehrara, M., & Rahmani, M. (2019). measuring and analysis of systemic risk in iranian banking sector and investigating Its Determinants. Journal of Econometric Modelling, 4(3), 11-36 (In Persian).
  2. Adrian, T., & Brunnermeier, M. K. (2011). CoVaR: A method for macroprudential regulation. NBER working paper, No. 17454.
  3. Aizenman, J., Jinjarak, Y., &, Zheng, H. (2016). Measuring systemic risk contribution of international mutual funds. ADBI Working Paper, No. 594.
  4. Akar, C. (2011). Dynamic relationships between the stock exchange, gold, and foreign exchange returns in Turkey, middle eastern  finance  and economics, 12, 109-15.
  5. Anand, A., Irvine, P., Puckett, A., & Venkataraman, K. (2013). Institutional trading and stock resiliency: Evidence from the 2007–2009 financial crisis, Journal of Financial Economics, 108(3), 773–97.
  6. Bollerslev, T., Engle, R. F., & Wooldridge, J. M. (1988). A capital asset pricing model with time varying covariances, Journal of Political Economy, 1, 116–131.
  7. Cortes, F., Lindner, P., Malik, S., & Segoviano, M. A. (2018). A comprehensive multi-sector tool for analysis of systemic risk and interconnectedness. IMF Working Paper, No. 18/14.
  8. Coval, J., & Stafford, E. (2007). Asset fire sales (and purchases) in equity markets. Journal of Financial Economics, 86, 479–512.
  9. Dungey, H., Flavin, T., O'Connor, T., & Wosser, M. (2020). Industrial Firms and Systemic Risk. National University of Ireland Working paper, 298, 1-37.
  10. Engle, R. (2002). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroscedasticity models. Journal of Business and Economic Statistics, 20, 339-350.
  11. Engle, R., & Kroner, F. K. (1995). Multivariate simultaneous generalized ARCH. Econometric Theory, 11, 22–150.
  12. Espinoza, A., Segoviano, M., & Yan, J. (2020). Systemic Risk Modeling: How Theory Can Meet Statistics. IMF Working Paper, 20/54, 1-49.
  13. Feroli, M., & Schoenholtz, K. L., & Song Shin, H. (2014). Market tantrums and monetary Policy. Chicago Booth Working Paper, No 14-09.
  14. Gilanipour J.  (2020). The Evaluation of Systemic Risk in the Iran banking system marginal expected shortfall (MES). Quarterly journal of economic research and policies, 27 (92), 407-429 (In Persian).
  15. Hattori, A. Kikuchi, K., Niwa, F., & Uchida, Y. (2014). A Survey of Systemic Risk Measures: Methodology and Application to the Japanese Market. IMES Discussion Paper Series, 14-E-03, 1-50.
  16. Hau, H., & Lai, S., (2012). The role of equity funds in the financial crisis propagation, Swiss Finance Institute working paper, No. 11-35.
  17. Hoseini, S., & Razavi, s. (2014). The role of capital in financial institutions and systemic risk. Journal of Empirical Research in Accounting, 4(1), 127-147 (In Persian).
  18. Kambhu, J., Schuermann, T., & Stiroh, K. J. (2007). Hedge funds, financial intermediation, and systemic risk. Federal Reserve Bank of New York Staff Reports, No. 291.
  19. Khiabani, N., mohammadian nikpey, E. (2018). Systemic Risk Analysis in Selected Industries of Tehran Stock Exchange: A Multivariate Quantile Regression Approach. Iranian Journal of Economic research, 23(77), 1-36 (In Persian). 
  20. Kurosaki, T., & Kim, Y., (2013). Systematic risk measurement in the global banking stock market with time series analysis and CoVaR. investment management and financial innovation, 10(1), 184-196.
  21. Lebo, J. M., & Steffensmeier, J. M. (2008). Dynamic Conditional Correlation in Political Science. American Journal of Political Science, 52(3), 688-704.
  22. Manconi, A., Massa, M., & Asuda, A. (2012). The role of institutional investors in propagating the crisis. Journal of Financial Economics, 104(3), 491–518.
  23. Nachmany, A., (2013). A perspective on  mutual fund redemption activity  and systemic risk, The report on asset Management and Financial Stability of the Office of Financial Research, (www.sionline.com).
  24. Nil, F. (2005). A primer on financial stability, trend of economic research, 45, 25-56 (In Persian).
  25. Radpur, M., & Abdeh, H. T. (2009). measurement and Management market risk. Tehran: Agah (In Persian).
  26. rahimi baghi, A., Arabsalehi Nasrabadi, M., Vaez Barzani, M. (2019). Assessing the Systemic Risk in the Financial Sub-Systems of Iran, using Nonlinear Granger Method. Asset Management and Financing, 7(2), 59-80 (In Persian). doi: 10.22108/amf.2019.112209.1281.
  27. Shim, I., & Miyajima, K. (2014). Asset managers in emerging market economies. BIS Quarterly Review, 1-20.
  28. Stiglitz. E. (1994). The Role of the State in Financial Markets.The World Bank Economic Review, (7), 19–52.
  29. Tarashev,  N.,  Borio,  C., & Tsatsaronis,  K. ( 2010). attributing  systemic  risk  to  individual Institutions, BIS working paper, No. 308.
  30. Tse, Y. K. (2000).  a test  for constant  correlations  in  a  multivariate  GARCH  model. Journal of Econometrics, 98, 107-127.
Quarterly Journal of Applied Theories of Economics
Volume 7, Issue 2 - Serial Number 25
September 2020
Pages 199-222

Files

Share

How to cite

Statistics