Networks of Common Asset Holdings: Aggregation and Measures of Vulnerability

27 Pages Posted: 16 Jan 2014 Last revised: 3 Nov 2014

See all articles by Anton Braverman

Anton Braverman

Cornell University - School of Operations Research and Industrial Engineering

Andreea Minca

Cornell University

Date Written: January 17, 2014

Abstract

This paper quantifies the interrelations induced by common asset holdings among financial institutions. A network representation emerges, where nodes represent portfolios and edge weights aggregate the common asset holdings and the liquidity of these holdings. As a building block, we introduce a simple model of order imbalance that estimates price impacts due to liquidity shocks. In our model, asset prices are set by a competitive risk-neutral market maker and the arrival rates for the buyers and sellers depend on the common asset holdings. We illustrate the relevance of our aggregation method and the resulting network representation using data on mutual fund asset holdings. We introduce three related measures of vulnerability in the network and demonstrate a strong dependence between mutual fund returns and these measures.

Keywords: Financial networks, Mutual Funds, Contagion, Liquidity, Flow Imbalance, Aggregation

Suggested Citation

Braverman, Anton and Minca, Andreea, Networks of Common Asset Holdings: Aggregation and Measures of Vulnerability (January 17, 2014). Available at SSRN: https://ssrn.com/abstract=2379669 or http://dx.doi.org/10.2139/ssrn.2379669

Anton Braverman (Contact Author)

Cornell University - School of Operations Research and Industrial Engineering ( email )

Ithaca, NY
United States

Andreea Minca

Cornell University ( email )

222 Rhodes Hall
Ithaca, NY NY 14853
United States

HOME PAGE: http://people.orie.cornell.edu/acm299/

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