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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
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.
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.
- G01 - Financial Economics - - General - - - Financial Crises
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
Keywords: Shadow banking; funding agreement-backed securities; life insurance companies; self-fulfilling runs
This item with handle RePEc:fip:fedgfe:2015-32
is also listed on EconPapers
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