Active or passive: Deposit investments of individual investors
46 Pages Posted: 15 Apr 2022 Last revised: 28 Feb 2024
Date Written: February 27, 2024
Abstract
Using detailed register-based data with information on individuals’ deposit holdings, we test whether individuals are active investors when it comes to their deposit holdings and why they hold deposits. We provide three main findings. First, we show that deposit investors are active, as they actively reduce their deposit holdings following an exogenous increase captured by unexpected inheritances. Second, following large exogeneous deposit inflows, people reallocate away from low-return deposits to higher expected-return assets, such as bonds and stocks, in line with classical deposit-demand theories. Third, people use deposits and voluntary unemployment insurance as substitutes, meaning deposits are used to insure against sudden negative income shocks.
Keywords: household finance, bank deposits, liquidity management, precautionary savings
JEL Classification: G11, G51
Suggested Citation: Suggested Citation