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Cyclical Investment Behaviour 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 price changes. For identification, I use unique security-level data from the German Microdatabase Securities Holdings Statistics. Banks and investment funds respond in a pro-cyclical manner to price changes. In contrast, insurance companies and pension funds act counter-cyclically; they buy after price declines and sell after price increases. 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 pro-cyclical investment behavior.

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  • Timmer, Yannick, 2017. "Cyclical Investment Behaviour across Financial Institutions," ECMI Papers 12747, Centre for European Policy Studies.
  • Handle: RePEc:eps:ecmiwp:12747
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    Cited by:

    1. Baranova, Yuliya & Douglas, Graeme & Silvestri, Laura, 2019. "Simulating stress in the UK corporate bond market: investor behaviour and asset fire-sales," Bank of England working papers 803, Bank of England.
    2. Bergant, Katharina & Fidora, Michael & Schmitz, Martin, 2018. "International capital flows at the security level – evidence from the ECB’s asset purchase programme," ECMI Papers 13926, Centre for European Policy Studies.
    3. Matías Lamas & Javier Mencía, 2018. "What drives sovereign debt portfolios of banks in a crisis context?," Working Papers 1843, Banco de España;Working Papers Homepage.
    4. Czech, Robert & Roberts-Sklar, Matt, 2017. "Investor behaviour and reaching for yield: evidence from the sterling corporate bond market," Bank of England working papers 685, Bank of England.
    5. Timmer, Yannick, 2018. "Cyclical investment behavior across financial institutions," Journal of Financial Economics, Elsevier, vol. 129(2), pages 268-286.
    6. Rohan Arora & Guillaume Bédard-Pagé & Guillaume Ouellet Leblanc & Ryan Shotlander, 2019. "Bond Funds and Fixed-Income Market Liquidity: A Stress-Testing Approach," Technical Reports 115, Bank of Canada.
    7. Paludkiewicz, Karol, 2018. "Unconventional Monetary Policy, Bank Lending, and Security Holdings: The Yield-Induced Portfolio Rebalancing Channel," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181669, Verein für Socialpolitik / German Economic Association.
    8. Bergant, Katharina, 2017. "Quantitative Easing and Portfolio Rebalancing: Micro Evidence from Irish Resident Banks," Economic Letters 07/EL/17, Central Bank of Ireland.
    9. Möhlmann, Axel, 2017. "Interest rate risk of life insurers: Evidence from accounting data," Discussion Papers 10/2017, Deutsche Bundesbank.

    More about this item

    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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