Portfolio Similarity and Asset Liquidation in the Insurance Industry

56 Pages Posted: 27 Aug 2018 Last revised: 28 Aug 2018

See all articles by Giulio Girardi

Giulio Girardi

Securities and Exchange Commission

Kathleen Weiss Hanley

Lehigh University - College of Business

Stanislava (Stas) Nikolova

University of Nebraska - Lincoln

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Ca Foscari University of Venice

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: July 30, 2018

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

JEL Classification: G11, G18, G2

Suggested Citation

Girardi, Giulio and Hanley, Kathleen Weiss and Nikolova, Stanislava (Stas) and Pelizzon, Loriana and Getmansky Sherman, Mila, Portfolio Similarity and Asset Liquidation in the Insurance Industry (July 30, 2018). SAFE Working Paper No. 224. Available at SSRN: https://ssrn.com/abstract=3239362 or http://dx.doi.org/10.2139/ssrn.3239362

Giulio Girardi

Securities and Exchange Commission ( email )

Washington, DC
United States

Kathleen Weiss Hanley

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Stanislava (Stas) Nikolova

University of Nebraska - Lincoln ( email )

Lincoln, NE 68588-0490
United States
402-472-6049 (Phone)

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Mila Getmansky Sherman

University of Massachusetts at Amherst - Eugene M. Isenberg School of Management - Department of Finance ( email )

Amherst, MA 01003-4910
United States

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