Similar Investors

50 Pages Posted: 9 Oct 2018 Last revised: 28 Apr 2019

See all articles by Co-Pierre Georg

Co-Pierre Georg

Deutsche Bundesbank; University of Cape Town (UCT)

Diane Pierret

HEC - University of Lausanne; Swiss Finance Institute

Sascha Steffen

Frankfurt School of Finance & Management

Date Written: April 10, 2019

Abstract

We study the effect of portfolio similarity among investors on their decision to roll over funding to a security issuer. Using detailed security level holdings of U.S. Money Market Mutual Funds (MMFs), we construct a novel measure of portfolio similarity among institutional investors (i.e. MMFs) who are exposed to the same security issuer. Consistent with correlated liquidity needs of more similar investors, the similarity of a fund to other investors in a security issuer increases joint liquidation costs for the security. Among funds investing in the same issuer at the same time, we find that the funds reducing their exposure to the issuer are the most similar funds. At the issuer level, the average similarity of the funds investing in an issuer predicts the issuer's total funding flows in the next period. In other words, issuers cannot substitute this loss in funds from similar investors, particularly during crises, and are thus exposed to greater funding liquidity risk.

Keywords: institutional investors, liquidity risk, wholesale funding

JEL Classification: G1, G21

Suggested Citation

Georg, Co-Pierre and Pierret, Diane and Steffen, Sascha, Similar Investors (April 10, 2019). Available at SSRN: https://ssrn.com/abstract=3250826 or http://dx.doi.org/10.2139/ssrn.3250826

Co-Pierre Georg (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Diane Pierret

HEC - University of Lausanne ( email )

Institute of Banking and Finance
Unil Dorigny, Batiment Extranef
Lausanne, 1015
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Sascha Steffen

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Register to save articles to
your library

Register

Paper statistics

Downloads
64
Abstract Views
546
rank
340,879
PlumX Metrics