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Cyclical investment behavior across financial institutions

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  • Timmer, Yannick

Abstract

This paper contrasts the investment behavior of different financial institutions in debt securities as a response to past returns. For identification, I use unique security-level data from the German Microdatabase Securities Holdings Statistics. Banks and investment funds respond in a procyclical manner to past security-specific holding period returns. In contrast, insurance companies and pension funds act countercyclically; they buy when returns have been negative and sell after high returns. The heterogeneous responses can be explained by differences in their balance sheet structure. I exploit within-sector variation in the financial constraint to show that tighter constraints are associated with relatively more procyclical investment behavior.

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  • Timmer, Yannick, 2018. "Cyclical investment behavior across financial institutions," Journal of Financial Economics, Elsevier, vol. 129(2), pages 268-286.
    • Handle: RePEc:eee:jfinec:v:129:y:2018:i:2:p:268-286
    DOI: 10.1016/j.jfineco.2018.04.012
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    More about this item

    Keywords

    Portfolio allocation; Investment behavior; Financial markets; Debt securities; Balance sheet constraints;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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