In addition to buying securities in the market, these companies can invest households’ savings in other funds with differing risk profiles. There is thus a larger number of agents involved. The opportunities today to divide cashflow into different types of securities with the liquidity, duration and risk that suit a particular investor are another example. This means, for instance, that the banks which lend money to a customer do not need to retain the credit risk this causes, but can sell the risk on to, say, a pension fund company. They do this by selling the loan to a special company, which then  1  The inspiration for this speech has largely come from a discussion at the Federal Reserve Bank of Kansas City's seminar "Monetary Policy in the Era of Alan Greenspan", based on an article by Raghuram G. Rajan "Has Financial Development Made the World Riskier?". 1/5  issues securities with the loan as collateral. The pension company can then in turn sell the risks to others looking for good investments, such as households or other investors. Derivative products also enable risks to be divided up and priced separately. However, agents in the Swedish markets use both credit derivatives and securitisation relatively sparingly as yet. Internationally, these markets have shown rapid growth. In the year 2004 the value of outstanding contracts for credit derivatives was almost six times higher than it had been in 2001.
If the asset managers are lucky, they will manage to predict the period with a positive yield and the rare loss will not become a reality during the period they are being evaluated. This appears more likely the shorter the evaluation period is. Willingness to take risks can increase in a low interest rate environment. Agents may then wish to take more interest rate risk and perhaps come further out on the yield curve, thus becoming more sensitive to rapid interest rate fluctuations. They may also look for new types of investment. The fact that they are evaluated in comparison with others in the market may also lead to asset managers adopting herd behaviour, even if they have a different opinion of the current developments in the financial markets. It is better to lose in good company than to stand alone with an investment that might provide a good return in the long-run, but which results in short-term losses. The word might is central here, as no one can predict market developments and it is therefore difficult to go against a trend. Herd mentality can thus lead to asset prices deviating from fundamental economic conditions during a relatively long period of time. The contagion effects can also increase when the view of the world changes. Herd behaviour among market agents does not only involve investing in the same assets. There are signs that this also includes researching information.