Funds’ synthetic leverage should be monitored – Bundesbank paper
A working paper published by the Deutsche Bundesbank proposes a new method for measuring a particular kind of risk-taking by mutual funds.
In Synthetic leverage and fund risk-taking, Daniel Fricke notes the literature on risk-taking by mutual funds tends to focus on buying riskier securities. He examines another kind of possible risk-taking, where funds “lever up their investments by means of synthetic leverage via off-balance sheet activities (e.g., derivatives)”.
The academic literature on
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