FRIC/FI Seminar with Valentin Haddad, UCLA Anderson School of Management

On March 3, 2017 Valentin Haddad will present: "Asset Insulators"

Friday, March 3, 2017 - 11:00 to 12:15

FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Valentin Haddad, UCLA Anderson School of Management.

Valentin Haddad will present:

PDF icon Asset Insulators

Gabriel Chodorow-Reich, Harvard University & NBER
Andra C. Ghent, University of Wisconsin – Madison
Valentin Haddad, UCLA & NBER

We propose that financial institutions can act as asset insulators, holding as-sets for the long run to protect their valuations from consequences of exposure to financial markets. We illustrate the empirical relevance of this theory for the balance sheet behavior of a large class of intermediaries, life insurance companies. The pass-through from assets to equity is an especially informative metric for distinguishing the asset insulator theory from Modigliani-Miller or other standard models. We estimate the pass-through using security-level data on insurers’ holdings matched to corporate bond returns. Uniquely consistent with the insulator view, outside of the 2008-2009 crisis insurers lose as little as 10 cents in response to a dollar drop in asset values, while during the crisis the pass-through rises to roughly 1. The rise in pass-through highlights the fragility of insulation exactly when it is most valuable.

The page was last edited by: Department of Finance // 02/20/2017