It is well understood that in financial markets procyclicality can be determined by behavioural phenomena (euphoria and panics), such as herding.15 In the case of the asset management industry, procyclicality can be exacerbated by the pricing rules for fund shares, the incentive structure for fund managers and the benchmarking of fund performance.16  14  15  16  Some asset managers provide their clients with indemnification, a type of insurance associated with securities lending.
When the borrower of a security defaults on the loan and the collateral received is insufficient to cover the repurchase price of the lent securities, the shortfall is borne by the indemnification provider. See for example D.S. Scharfstein and J.C. Stein, 1990. “Herd Behavior and Investment.” American Economic Review 80; T. Lux, “Herd Behaviour, Bubbles and Crashes,” Economic Journal 105, No.