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The Impact of Large Portfolio Insurers on Asset Prices
Author(s) -
DONALDSON R. GLEN,
UHLIG HARALD
Publication year - 1993
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1993.tb05135.x
Subject(s) - portfolio , portfolio insurance , volatility (finance) , business , replicating portfolio , financial economics , asset (computer security) , monetary economics , economics , actuarial science , finance , portfolio optimization , computer security , computer science
We develop a simple model in which the presence of portfolio insurers in a market of risk‐averse traders leads to multiple equilibria for the pricing of financial assets and can cause an increase in volatility, including insurance‐induced price drops. We demonstrate, however, that centralized portfolio insurance firms may actually reduce, not increase, volatility, even if the existence of these firms increases the total amount of funds under insurance.