eprintid: 3861
rev_number: 10
eprint_status: archive
userid: 69
dir: disk0/00/00/38/61
datestamp: 2018-01-16 10:04:27
lastmod: 2018-01-16 10:04:27
status_changed: 2018-01-16 10:04:27
type: monograph
metadata_visibility: show
creators_name: Delpini, Danilo
creators_name: Battiston, Stefano
creators_name: Caldarelli, Guido
creators_name: Riccaboni, Massimo
creators_id: 
creators_id: 
creators_id: guido.caldarelli@imtlucca.it
creators_id: massimo.riccaboni@imtlucca.it
title: The Network of U.S. Mutual Fund Investments: Diversification, Similarity and Fragility throughout the
Global Financial Crisis
ispublished: submitted
subjects: HA
subjects: HB
subjects: HG
divisions: EIC
full_text_status: public
monograph_type: working_paper
abstract: Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the actual risk diversification by individual investors. We 
nvestigate the bipartite network of US mutual fund portfolios and their assets. We follow its evolution during the Global Financial Crisis and analyse the interplay between diversification, as understood in classical portfolio theory, and similarity of the investments of different funds. We show that, on average, portfolios have become more diversified and less similar during the crisis. However, we also find that large overlap is far more likely than expected from models of random allocation of investments. This indicates the existence of strong correlations between fund portfolio strategies. We introduce a simplified model of propagation of financial shocks, that we exploit to show that a systemic risk component origins from the similarity of portfolios. The network is still vulnerable after crisis because of this effect, despite the increase in the diversification of portfolios. Our results indicate that diversification may even increase systemic risk when funds diversify in the same way. Diversification and similarity can play antagonistic roles and the trade-off between the two should be taken into account to properly assess systemic risk.
date: 2018
date_type: published
publisher: arXiv
pages: 27
id_number: arXiv:1801.02205
institution: IMT Institute for Advanced Studies Lucca
official_url: https://arxiv.org/abs/1801.02205
citation:   Delpini, Danilo and Battiston, Stefano and Caldarelli, Guido and Riccaboni, Massimo  The Network of U.S. Mutual Fund Investments: Diversification, Similarity and Fragility throughout the Global Financial Crisis.  Working Paper   arXiv       (Submitted)   
document_url: http://eprints.imtlucca.it/3861/1/1801.02205.pdf