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Portfolio similarity and asset liquidation in the insurance industry

Author

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  • Girardi, Giulio
  • Hanley, Kathleen W.
  • Nikolova, Stanislava
  • Pelizzon, Loriana
  • Sherman, Mila Getmansky

Abstract

We examine whether the concern about insurers selling similar assets due to an overlap in holdings is justified. We measure this overlap using cosine similarity and find that insurers with more similar portfolios have larger subsequent common sales. When faced with a shock to assets or liabilities, exposed insurers with greater portfolio similarity have larger common sales that impact prices. Our portfolio similarity measure can be used by regulators to predict the common selling of any institution that reports security or asset class holdings, making the measure a useful ex ante predictor of divestment behavior in times of market stress.

Suggested Citation

  • Girardi, Giulio & Hanley, Kathleen W. & Nikolova, Stanislava & Pelizzon, Loriana & Sherman, Mila Getmansky, 2021. "Portfolio similarity and asset liquidation in the insurance industry," Journal of Financial Economics, Elsevier, vol. 142(1), pages 69-96.
    • Handle: RePEc:eee:jfinec:v:142:y:2021:i:1:p:69-96
    DOI: 10.1016/j.jfineco.2021.05.050
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    More about this item

    Keywords

    Interconnectedness; Asset liquidation; Similarity; Financial stability; Insurance companies; Fire sales;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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