How do Retail Investors Adapt to Exchange Rate Shocks?

Martin Brown, Daniel Hoechle, Alejandra Perez and Markus Schmid
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Daniel Hoechle: FHNW School of Business - Institute for Finance; University of Basel - Department of Finance

No 24-108, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We study the impact of monetary policy on household finance in open economies. We examine the response of retail investors to a policy shock which led to (i) a sharp appreciation of the domestic currency, (ii) a significant increase in exchange rate volatility, and (iii) the introduction of a negative policy rate. Our analysis is based on monthly, account-level data covering bank deposits, securities holdings and trades for a large sample of affluent bank clients. The policy shock leads to a shift of assets away from fixed income securities towards domestic currency bank deposits and foreign currency risky securities. Wealthier clients display a stronger portfolio shift towards risky securities in foreign currency as they search for yield. Investor attention, as measured by trading activity and contacts with bank advisors, increases temporarily after the shock.

Keywords: Household finance; Monetary policy; Financial stability; Exchange rates; Interest rates (search for similar items in EconPapers)
JEL-codes: E41 E52 E58 F31 G11 G21 G51 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2024-12
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp24108

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