Short-term investors concentrate risk in fragile bond funds
Bond funds dominated by short-term investors increased risk after insurer withdrawals rather than reducing it. Bank of Italy Working Paper No. 1546, published October 20, 2026, traces this response to Italy's May 2018 sovereign shock.
Withdrawals deepen the risk divide
Highly exposed corporate bond funds with short-term investor bases lost about 12 percentage points of Italian insurer ownership after the shock.
Their short-term ownership share rose by roughly 12 percentage points, while net flows fell by about 6.5 percentage points relative to the reference group.
These funds actively increased high-yield bond holdings and reduced safe assets; returns increased by about 0.7 percentage points.
Funds with long-term investor bases lost about 4 percentage points of Italian insurer ownership, but attracted other euro-area insurers and pension funds, keeping flows and portfolios broadly stable.
Comparable investor-base effects were absent in tests covering 230 equity funds and 3,885 directly held corporate bonds.
Capital pressure crosses fund boundaries
Valerio Della Corte, Raffaele Gallo, Taneli Mäkinen and Francesco Palazzo study 241 corporate bond funds using insurer, investor and security-level data.
Italy's May 2018 shock reduced insurers' capital ratios by around 35 percentage points.
Insurers cut riskier fund holdings in non-unit-linked portfolios by about 15 percent, without comparable unit-linked sales.
Funds had limited direct Italian exposure, isolating the liability channel.
Long-term-heavy funds had over 52 percent long-term ownership; highly exposed funds had a weighted insurer-exposure measure above 20 percent.
Assets alone miss fragility
The authors argue that asset-liquidity measures alone miss differences in fund resilience.
They propose an investor-base metric analogous to banks' Net Stable Funding Ratio, alongside swing pricing, anti-dilution levies and redemption gates.
Their evidence does not establish security-level fire-sale effects.