Crisis Impact on the Diversity of Financial Portfolios - Evidence from European Citizens

39 Pages Posted: 21 Sep 2020

See all articles by Dorothea Schaefer

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin); JIBS

Michael Stöckel

affiliation not provided to SSRN

Henriette Weser

Free University of Berlin (FUB); German Institute for Economic Research (DIW Berlin), Students

Date Written: September 2020

Abstract

Since the 2008 Lehman bankruptcy, it is clearly shown that global economic and financial crises present major challenges to private households, requiring from them, a high level of shock absorption capacity. According to the old adage, “Do not put all the eggs in one basket”, resilience depends, to a large extent on financial diversification. So far, especially for Europe, little is known about whether and how the Great Financial Crisis (GFC) affected the diversity of private households’ investment portfolios. We tackle this research gap and explore the impact of the GFC on portfolio diversity of European private households. Our European focus complements Sierminska and Silber (2019) who explore the diversification behaviour of US households after the Lehman insolvency. Our study reveals a significant decrease in the diversity of financial portfolios. This finding is robust across distinct model specifications. In response to the GFC, evidence suggests that European households adjusted the diversity of their financial portfolio in the opposite directions to that of US households.

Keywords: Financial and economic crisis, household finance, portfolio diversification, Shannon entropy index, Gini-Simpson diversity index, background risk, risk aversion

JEL Classification: D14,G11,G01,G40

Suggested Citation

Schaefer, Dorothea and Stöckel, Michael and Weser, Henriette, Crisis Impact on the Diversity of Financial Portfolios - Evidence from European Citizens (September 2020). DIW Berlin Discussion Paper No. 1899, Available at SSRN: https://ssrn.com/abstract=3696401 or http://dx.doi.org/10.2139/ssrn.3696401

Dorothea Schaefer (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 8978 9162 (Phone)
+49 30 8978 9104 (Fax)

JIBS ( email )

Jönköping, 55111
Sweden

Michael Stöckel

affiliation not provided to SSRN

Henriette Weser

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

German Institute for Economic Research (DIW Berlin), Students ( email )

Germany

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