Wealth Shocks, Credit-Supply Shocks, and Asset Allocation: Evidence from Household and Firm Portfolios

56 Pages Posted: 21 Jun 2016

See all articles by Thomas K. Kick

Thomas K. Kick

Deutsche Bundesbank

Benedikt Ruprecht

Deutsche Bundesbank

Enrico Onali

University of Exeter Business School

Klaus Schaeck

University of Bristol

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

We use a unique dataset with bank clients' security holdings for all German banks to examine how macroeconomic shocks affect asset allocation preferences of households and non-financial firms. Our analysis focuses on two alternative mechanisms which can influence portfolio choice: wealth shocks, which are represented by the sovereign debt crisis in the Eurozone, and credit-supply shocks which arise from reductions in borrowing abilities during bank distress. We document heterogeneous responses to these two types of shocks. While households with large holdings of securities from stressed Eurozone countries (Greece, Ireland, Italy, Portugal, and Spain) decrease the degree of concentration in their security portfolio as a result of the Eurozone crisis, non-financial firms with similar levels of holdings from stressed Eurozone countries do not. Credit-supply shocks at the bank level (caused by bank distress) result in lower concentration, for both households and non-financial corporations. We also show that only shocks to corporate credit bear ramifications on bank clients' portfolio concentration, while shocks in retail credit are inconsequential. Our results are robust to falsification tests, propensity score matching techniques, and instrumental variables estimation.

Keywords: asset allocation, sovereign debt crisis, credit-supply shocks, bank distress

JEL Classification: D12, D13, G11, G21

Suggested Citation

Kick, Thomas K. and Ruprecht, Benedikt and Onali, Enrico and Schaeck, Klaus, Wealth Shocks, Credit-Supply Shocks, and Asset Allocation: Evidence from Household and Firm Portfolios (2014). Bundesbank Discussion Paper No. 07/2014, Available at SSRN: https://ssrn.com/abstract=2796959 or http://dx.doi.org/10.2139/ssrn.2796959

Thomas K. Kick (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Benedikt Ruprecht

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 9566 - 8618 (Phone)

Enrico Onali

University of Exeter Business School ( email )

Exeter
United Kingdom

Klaus Schaeck

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, Avon BS8 ITH
United Kingdom

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