Active or passive: Deposit investments of individual investors

46 Pages Posted: 15 Apr 2022 Last revised: 28 Feb 2024

See all articles by Linda Sandris Larsen

Linda Sandris Larsen

Copenhagen Business School

Ulf Nielsson

Copenhagen Business School

Oliver-Alexander Press

Copenhagen Business School

Jesper Rangvid

Copenhagen Business School

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

Larsen, Linda Sandris and Nielsson, Ulf and Press, Oliver-Alexander and Rangvid, Jesper, Active or passive: Deposit investments of individual investors (February 27, 2024). Available at SSRN: https://ssrn.com/abstract=4054526 or http://dx.doi.org/10.2139/ssrn.4054526

Linda Sandris Larsen

Copenhagen Business School ( email )

Solbjerg Plads 3, A5
Frederiksberg, 2000
Denmark

Ulf Nielsson

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Oliver-Alexander Press (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Jesper Rangvid

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
DENMARK

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