Wealth Shocks, Credit-Supply Shocks, and Asset Allocation: Evidence from Household and Firm Portfolios
Thomas K. Kick
Aston University - Aston Business School; University of Wales System - Bangor University, Bangor Business School
University of Wales - Bangor Business School
March 13, 2014
ECB Working Paper No. 1662
We use a unique dataset with bank clients’ security holdings for all German banks to examine how macroeconomic shocks affect asset allocation preferences of households and non-financial firms. Our analysis focuses on two alternative mechanisms which can influence portfolio choice: wealth shocks, which are represented by the sovereign debt crisis in the Euro area, and credit-supply shocks which arise from reductions in borrowing abilities during bank distress. While households with large holdings of securities from stressed Euro area countries (Greece, Ireland, Italy, Portugal, and Spain) decrease the degree of concentration in their security portfolio as a result of the Euro area crisis, non-financial firms with similar levels of holdings from stressed Euro area countries do not. Credit-supply shocks at the bank level result in lower concentration, for both households and non-financial corporations. Only shocks to corporate credit bear ramifications on bank clients’ portfolio concentration. Our results are robust to falsification tests, and instrumental variables estimation.
Number of Pages in PDF File: 48
Keywords: asset allocation; sovereign debt crisis; credit-supply shocks; bank distress
JEL Classification: D12; D13; G11; G21
Date posted: April 5, 2014
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