1674. From reputational risk to contagion risk in ESG-ranked equity mutual funds
Invited abstract in session TD-7: Quantitative methods for systemic and climate risk, stream Risk Management in Commodities and Financial Markets .
Tuesday, 14:30-16:00Room: Clarendon GR.01
Authors (first author is the speaker)
| 1. | Francesco Morelli
|
| Social Sciences, Link Campus University | |
| 2. | Rocco Ciciretti
|
| University of Rome Tor Vergata | |
| 3. | Marco Nicolosi
|
| University of Perugia |
Abstract
We analyze a network of equity mutual funds, characterized by different levels of compliance with Environmental, Social, and Governance (ESG) criteria, as well as different degrees of reputational risk. Our study investigates the impact of portfolio liquidations during stress scenarios, where funds within the network are shocked based on the reputational risk of the assets they have in portfolios. The subsequent spillover effects from fire-sales spread throughout the entire network because of indirect contagion, driven by shared asset holdings among funds. Focusing on the US market from June 2016 to June 2022, we assess, on a monthly basis, whether High ESG-ranked funds demonstrate greater resilience to contagion compared to Low ESG-ranked funds under varying stress scenarios. Furthermore, by applying principal component analysis to the network's adjacency matrix, we empirically demonstrate that the coordinates of the first principal component serve as a measure of each fund's vulnerability to contagion.
Keywords
- Risk Analysis and Management
- Network Design
- Finance and Banking
Status: accepted
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