Financial contagion in investment funds

TL;DR

This paper develops a network-based model to analyze financial contagion among investment funds, utilizing cross-holdings and fund-asset relationships to assess market stability in Brazil.

Contribution

It extends existing contagion models specifically to investment funds by incorporating cross-holdings and fund-asset networks, providing new insights into market stability analysis.

Findings

Identified contagion patterns among Brazilian investment funds.

Analyzed the network structure of fund-asset relationships.

Assessed market stability using the proposed network model.

Abstract

Many new models for measuring financial contagion have been presented recently. While these models have not been specified for investment funds directly, there are many similarities that could be explored to extend the models. In this work we explore ideas developed about financial contagion to create a network of investment funds using both cross-holding of quotas and a bipartite network of funds and assets. Using data from the Brazilian asset management market we analyze not only the contagion pattern but also the structure of this network and how this model can be used to assess the stability of the market.