Similar Investors

63 Pages Posted: 9 Oct 2018 Last revised: 26 Dec 2023

See all articles by Co-Pierre Georg

Co-Pierre Georg

EDHEC Business School

Diane Pierret

Universite du Luxembourg - Luxembourg School of Finance; Centre for Economic Policy Research (CEPR)

Sascha Steffen

Frankfurt School of Finance & Management; Centre for Economic Policy Research (CEPR)

Date Written: December 23, 2023

Abstract

With the failure of Silicon Valley Bank in March 2023, the concentration risk in bank liabilities has come under scrutiny. We use detailed data on security-level holdings of U.S. Money Market Mutual Funds (MMFs) that fund banks to introduce a novel measure of portfolio similarity among investors. Our findings suggest that bank investors actively manage their asset holdings based on the similarity of their portfolios with those of other investors. Specifically, when portfolios are more similar, investors are less likely to roll over investments, anticipating higher expected joint liquidation costs. In line with this interpretation, the effect of similarity on investors' rollover decisions vanishes for secured debt securities or securities issued by non-financial institutions. Importantly, investor similarity has consequences at the issuer bank level as the average similarity of its investors' portfolios predicts the bank’s total funding in the following period.

Keywords: concentration risk, institutional investors, liquidity risk, wholesale funding.

JEL Classification: G1, G21

Suggested Citation

Georg, Co-Pierre and Pierret, Diane and Steffen, Sascha, Similar Investors (December 23, 2023). Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3250826

Co-Pierre Georg (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Diane Pierret

Universite du Luxembourg - Luxembourg School of Finance ( email )

162a, avenue de la Faïencerie
Luxembourg-Limpertsberg, L-1511
Luxembourg

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Sascha Steffen

Frankfurt School of Finance & Management ( email )

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

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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