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Working Paper
Asset Manager Commonality and Portfolio Similarity
Asset managers are increasingly influential in financial markets. We use new regulatory as well as manually collected data on asset managers of life insurers, the largest institutional investors of corporate bonds, and find that insurers with the same asset managers have more similar portfolios and trades. This similarity increases further if the asset manager actively oversees the majority of both insurers’ assets. Moreover, the effect intensifies the longer insurers share the same asset manager. Nevertheless, the effect is primarily driven by purchases rather than sales and the resulting ...
Discussion Paper
Are Asset Managers Vulnerable to Fire Sales?
According to conventional wisdom, an open-ended investment fund that has a floating net asset value (NAV) and no leverage will never experience a run and hence never have to fire-sell assets. In that view, a decline in the value of the fund’s assets will just lead to a commensurate and automatic decline in the fund’s equity—end of story. In this post, we argue that the conventional wisdom is incomplete and then explore some of the systemic risk consequences of investment funds’ vulnerabilities to fire-sale spillovers.
Working Paper
Asset Manager Commonality and Portfolio Similarity
Asset managers are increasingly influential in financial markets. We use new regulatory as well as manually collected data on asset managers of life insurers, the largest institutional investors of corporate bonds, and find that insurers with the same asset managers have more similar portfolios and trades. This similarity increases further if the asset manager actively oversees the majority of both insurers’ assets. Moreover, the effect intensifies the longer insurers share the same asset manager. Nevertheless, the effect is primarily driven by purchases rather than sales and the resulting ...
Discussion Paper
Did Third Avenue's Liquidation Reduce Corporate Bond Market Liquidity?
The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets. Events of this kind have the potential to increase the demand for market liquidity, as investors revise expectations, reassess risk exposures, and fulfill the need to trade. Moreover, portfolio effects and general fears of contagion may increase the demand for liquidity in assets only remotely related to a liquidating firm’s direct holdings. In this post, we examine whether FCF’s announced liquidation affected ...