Portfolio Flows and Household Portfolios

Abstract

In this paper, we show that cross-border portfolio flows around the peak of the European Crisis induced households to rebalance their portfolios toward housing. Estimating difference-in-differences regressions around Draghi’s “Whatever It Takes” speech in July 2012 with household data from the ECB’s Household Finance and Consumption Survey, we find that portfolio inflows induce households with larger ex-ante bond and equity shares to rebalance more strongly toward housing. The effect is not driven by higher pre-treatment access to credit or higher credit growth during the treatment period and is stronger for wealthier and less risk-averse households.

Keywords: Capital Flows, Portfolio Flows, Household Portfolio Rebalancing, Real Estate, Credit Channel

JEL Classification: F32, G11, G12, G51, R30