European Retail Funds as Complements or Substitutes during the 2008 Financial Crisis?

Previous academic literature showed the tremendous impact of the financial crisis of 2008 on the financial system, and specifically the stock market. However the European asset management sector, being the second largest market in the world, was also impacted by this crisis. Economic intuition portrays not only a negative effect, but also a positive effect in the form of a safe harbour effect, in which a shift from the stock market to asset management is expected. This leads to the question of whether retail funds act as complements or substitutes in relation to the stock market in terms of price and volume. By using the NBER recession dummy and the MSCI EMU and STOXX European stock index, an interaction effect between the recession dummy and the stock market index is analysed. Special attention is given to UCITS funds and sustainable funds. The result of this paper is that funds in general still act as substitutes for the stock market rather than complements during the financial crisis of 2008. The robustness check suggests a different result for the European sovereign debt crisis.