Similar Investors

42 Pages Posted: 9 Oct 2018

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: September 17, 2018


We study the effect of strategic complementarities among investors on their decisions to continue to invest in 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 an issuer induces a correlation between the default states of the issuer and the states where the fund's liquidity demand is high. 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 (September 17, 2018). Available at SSRN: or

Co-Pierre Georg (Contact Author)

Deutsche Bundesbank ( email )

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

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

Swiss Finance Institute ( email )

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

Sascha Steffen

Frankfurt School of Finance & Management ( email )

Frankfurt, 60322
16097326929 (Phone)


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