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Portfolio similarity and asset liquidation in the insurance industry

Author

Listed:
  • Girardi, Giulio
  • Hanley, Kathleen Weiss
  • Nikolova, Stanislava
  • Pelizzon, Loriana
  • Getmansky, Mila

Abstract

An important assumption underlying the designation of some insurers as systemically important is that their overlapping portfolio holdings can result in common selling. We measure the overlap in holdings using cosine similarity, and show that insurers with more similar portfolios have larger subsequent common sales. This relationship can be magnified for some insurers when they are regulatory capital constrained or markets are under stress. When faced with an exogenous liquidity shock, insurers with greater portfolio similarity have even larger common sales that impact prices. Our measure can be used by regulators to predict which institutions may contribute most to financial instability through the asset liquidation channel of risk transmission.

Suggested Citation

  • Girardi, Giulio & Hanley, Kathleen Weiss & Nikolova, Stanislava & Pelizzon, Loriana & Getmansky, Mila, 2018. "Portfolio similarity and asset liquidation in the insurance industry," SAFE Working Paper Series 224, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  • Handle: RePEc:zbw:safewp:224
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Celso Brunetti & Jeffrey H. Harris & Shawn Mankad, 2018. "Bank Holdings and Systemic Risk," Finance and Economics Discussion Series 2018-063, Board of Governors of the Federal Reserve System (US).
    2. Martijn Boermans & Viacheslav Keshkov, 2018. "The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration," DNB Working Papers 590, Netherlands Central Bank, Research Department.
    3. Kasinger, Johannes & Pelizzon, Loriana, 2018. "Financial stability in the EU: A case for micro data transparency," SAFE Policy Letters 67, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    4. Chotibhak, Jotikasthira & Ellul, Andrew & Kartasheva, Anastasia & Lundblad, Christian & Wagner, Wolf, 2018. "Insurers as Asset Managers and Systemic Risk," CEPR Discussion Papers 12849, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Interconnectedness; Asset Liquidation; Similarity; Financial Stability; Insurance Companies; SIFI;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G2 - Financial Economics - - Financial Institutions and Services

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