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Institutional Investors’ Behavior during the Recent Financial Crisis: Evidence of Procyclicality

Michael G. Papaioannou, Joonkyu Park, Jukka Pihlman and Han van der Hoorn
The Journal of Investing Spring 2015, 24 (1) 16-30; DOI: https://doi.org/10.3905/joi.2015.24.1.016
Michael G. Papaioannou
is deputy division chief for the Monetary and Capital Markets Department at the International Monetary Fund in Washington, DC.
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  • For correspondence: mpapaioannou@imf.org
Joonkyu Park
is an economist in the Western Hemisphere Department at the International Monetary Fund in Washington, DC.
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  • For correspondence: jpark3@imf.org
Jukka Pihlman
is managing director, global head of Central Banks and Sovereign Wealth Funds at Standard Chartered Bank in Singapore.
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  • For correspondence: jukka.pihlman@sc.com
Han van der Hoorn
is principal risk manager at PGGM in Zeist, The Netherlands.
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  • For correspondence: han.van.der.hoorn@pggm.nl
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Abstract

This article provides evidence on the procyclical investment behavior of major institutional investors during the global financial crisis and identifies the main factors that could account for such behavior. It also considers the implications of procyclical behavior and suggests a framework for sound investment practices for long-term investors. Although such procyclical investment behavior may be considered rational from an individual institution’s perspective, we maintain that a consistent long-term investment behavior of institutional investors would lead to better long-term, risk-adjusted returns and could also lessen the potential adverse effects of the procyclical investing on global financial stability.

TOPICS: Financial crises and financial market history, legal and regulatory issues for structured finance

  • © 2015 Pageant Media Ltd
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The Journal of Investing: 24 (1)
The Journal of Investing
Vol. 24, Issue 1
Spring 2015
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Institutional Investors’ Behavior during the Recent Financial Crisis: Evidence of Procyclicality
Michael G. Papaioannou, Joonkyu Park, Jukka Pihlman, Han van der Hoorn
The Journal of Investing Feb 2015, 24 (1) 16-30; DOI: 10.3905/joi.2015.24.1.016

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Institutional Investors’ Behavior during the Recent Financial Crisis: Evidence of Procyclicality
Michael G. Papaioannou, Joonkyu Park, Jukka Pihlman, Han van der Hoorn
The Journal of Investing Feb 2015, 24 (1) 16-30; DOI: 10.3905/joi.2015.24.1.016
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  • Article
    • Abstract
    • EVIDENCE OF PROCYCLICAL INVESTMENT BEHAVIOR FROM SOME INSTITUTIONAL INVESTORS
    • WHAT DRIVES PROCYCLICAL INVESTMENT BEHAVIOR?
    • IMPLICATIONS OF PROCYCLICAL BEHAVIOR
    • STRATEGIES TO MINIMIZE PROCYCLICALITY AND PROMOTE LONG-TERM INVESTMENT
    • CONCLUDING REMARKS
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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