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Cyclical investment behavior across financial institutions

Yannick Timmer

Journal of Financial Economics, 2018, vol. 129, issue 2, 268-286

Abstract: This paper contrasts the investment behavior of different financial institutions in debt securities as a response to past returns. For identification, I use unique security-level data from the German Microdatabase Securities Holdings Statistics. Banks and investment funds respond in a procyclical manner to past security-specific holding period returns. In contrast, insurance companies and pension funds act countercyclically; they buy when returns have been negative and sell after high returns. The heterogeneous responses can be explained by differences in their balance sheet structure. I exploit within-sector variation in the financial constraint to show that tighter constraints are associated with relatively more procyclical investment behavior.

Keywords: Portfolio allocation; Investment behavior; Financial markets; Debt securities; Balance sheet constraints (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G21 G22 G23 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Cyclical investment behavior across financial institutions (2018) Downloads
Working Paper: Cyclical Investment Behaviour across Financial Institutions (2017) Downloads
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DOI: 10.1016/j.jfineco.2018.04.012

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