Portfolio similarity and asset liquidation in the insurance industry

Giulio Girardi, Kathleen Weiss Hanley, Stanislava (Stas) Nikolova, Loriana Pelizzon () and Mila Getmansky

No 224, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

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.

Keywords: Interconnectedness; Asset Liquidation; Similarity; Financial Stability; Insurance Companies; SIFI (search for similar items in EconPapers)
JEL-codes: G11 G18 G2 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-fmk, nep-ias and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Portfolio similarity and asset liquidation in the insurance industry (2021)
Working Paper: Portfolio Similarity and Asset Liquidation in the Insurance Industry (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:224

DOI: 10.2139/ssrn.3239362

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