Publisher: John Wiley & Sons Inc
E-ISSN: 1540-6261|70|6|2489-2538
ISSN: 0022-1082
Source: THE JOURNAL OF FINANCE, Vol.70, Iss.6, 2015-12, pp. : 2489-2538
Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.
Abstract
ABSTRACTAccounting rules, through their interactions with capital regulations, affect financial institutions’ trading behavior. The insurance industry provides a laboratory to explore these interactions: life insurers have greater flexibility than property and casualty insurers to hold speculative‐grade assets at historical cost, and the degree to which life insurers recognize market values differs across U.S. states. During the financial crisis, insurers facing a lesser degree of market value recognition are less likely to sell downgraded asset‐backed securities. To improve their capital positions, these insurers disproportionately resort to gains trading, selectively selling otherwise unrelated bonds with high unrealized gains, transmitting shocks across markets.
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