The Impact of Large Portfolio Insurers on Asset Prices

R Glen Donaldson and Harald Uhlig ()

Journal of Finance, 1993, vol. 48, issue 5, 1943-55

Abstract: The authors develop a simple model in which the presence of portfolio insurers in a market of risk-averse traders leads to multiple equilibria for the pricing of financial assets and can cause an increase in volatility, including insurance-induced price drops. They demonstrate, however, that centralized portfolio insurance firms may actually reduce, not increase, volatility even if the existence of these firms increases the total amount of funds under insurance. Copyright 1993 by American Finance Association.

Date: 1993
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