On December 12, 2019, Fed in Print will introduce its new platform for discovering content. Please direct your questions to Anna Oates

Home About Latest Browse RSS Advanced Search

Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry
Nathan Foley-Fisher
Borghan N. Narajabad
Stephane Verani
Abstract

Is liquidity creation in shadow banking vulnerable to self-fulfilling runs? Investors typically decide to withdraw simultaneously, making it challenging to identify self-fulfilling runs. In this paper, we exploit the contractual structure of funding agreement-backed securities offered by U.S. life insurers to institutional investors. The contracts allow us to obtain variation in investors' expectations about other investors' actions that is plausibly orthogonal to changes in fundamentals. We find that a run on U.S. life insurers during the summer of 2007 was partly due to self-fulfilling expectations. Our findings suggest that other contemporaneous runs in shadow banking by institutional investors may have had a self-fulfilling component.


Download Full text
Download http://dx.doi.org/10.17016/FEDS.2015.032
Cite this item
Nathan Foley-Fisher & Borghan N. Narajabad & Stephane Verani, Self-fulfilling Runs: Evidence from the U.S. Life Insurance Industry, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2015-32, 25 Mar 2015.
More from this series
JEL Classification:
Subject headings:
Keywords: Shadow banking; funding agreement-backed securities; life insurance companies; self-fulfilling runs
For corrections, contact Ryan Wolfslayer ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal