The European Securities and Markets Authority has published, in an economic report, a stress simulation framework for investment funds, which is intended for use by national regulators. The report provides an overview of the framework, options available for stress testing and discusses the calibration of redemption shocks for investment funds, methods to assess the resilience of funds to shocks, ways to measure the impact of fund managers' liquidation strategies on financial markets, and possible second-round effects. The report also includes a case study where ESMA applied the stress simulation framework to 6,000 UCITS bond funds, the underlying data for which ESMA has shared with national regulators.

ESMA intends to use the stress test simulation to assist it in monitoring and identifying risks that may impact the funds industry.

View the economic report.

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