Systemic Portfolio Diversification

• 成果类型: Article
• 署名作者: Capponi, Agostino; Weber, Marko
• 署名单位: Columbia University; National University of Singapore
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.2022.0290
• 发表日期: 2024
• 关键词: Fire sales; RISK; liquidation; liquidity; finance

摘要

We study the portfolio choice problem of banks, taking into account losses due to fire-sale spillovers. We show that the optimal asset allocation can be recovered as the unique Nash equilibrium of a potential game. Our analysis highlights the key tradeoff between individual diversification and systemic risk. In a stylized model economy featuring two banks and two assets, we show that sacrificing individual diversification to reduce portfolio commonality increases the likelihood of a sale event, while simultaneously decreasing the probability of a costly systemic sell-off. Banks have stronger incentives to achieve systemic diversification if there is more heterogeneity in leverage among them, leading to a decrease in the overall vulnerability of the system. We provide numerical evidence that our conclusions are robust with respect to the number of banks and assets in the system.