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Cyclical investment behavior across financial institutions

Yannick Timmer

No 77, ESRB Working Paper Series from European Systemic Risk Board

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 Micro-database Securities Holdings Statistics. Banks and investment funds respond in a pro-cyclical manner to past security-specific holding period returns. In contrast, insurance companies and pension funds act counter-cyclically; 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 pro-cyclical investment behavior. JEL Classification: G11, G15, G12, G21, G22, G23

Keywords: balance sheet constraints; debt securities; financial markets; investment behavior; portfolio allocation (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-ban
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Journal Article: Cyclical investment behavior across financial institutions (2018) Downloads
Working Paper: Cyclical Investment Behaviour across Financial Institutions (2017) Downloads
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