Wealth shocks, credit-supply shocks, and asset allocation: evidence from household and firm portfolios

Thomas Kick, Benedikt Ruprecht, Enrico Onali, Klaus Schaeck

Research output: Working paperDiscussion paper

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.
Original languageEnglish
PublisherDeutsche Bundesbank Eurosystem
Number of pages56
ISBN (Electronic)978–3–95729–023–6
ISBN (Print)978–3– 95729–022–9
Publication statusPublished - 2014

Publication series

NameDeutsche Bundesbank Discussion Paper Series
PublisherDeutsche Bundesbank
No.07/2014

Fingerprint

Asset allocation
Credit supply
Wealth
Supply shocks
Household
Euro zone
Distress
Credit
Portfolio choice
Portugal
Retail
Sovereign debt crises
Propensity score matching
Spain
Macroeconomic shocks
Falsification
Greece
Instrumental variable estimation
Ireland
Borrowing

Keywords

  • asset allocation
  • sovereign debt crisis
  • credit-supply shocks
  • bank distress

Cite this

Kick, T., Ruprecht, B., Onali, E., & Schaeck, K. (2014). Wealth shocks, credit-supply shocks, and asset allocation: evidence from household and firm portfolios. (Deutsche Bundesbank Discussion Paper Series; No. 07/2014). Deutsche Bundesbank Eurosystem.
Kick, Thomas ; Ruprecht, Benedikt ; Onali, Enrico ; Schaeck, Klaus. / Wealth shocks, credit-supply shocks, and asset allocation : evidence from household and firm portfolios. Deutsche Bundesbank Eurosystem, 2014. (Deutsche Bundesbank Discussion Paper Series; 07/2014).
@techreport{cfe77cf0b9034da6b7d7efd0e62851e1,
title = "Wealth shocks, credit-supply shocks, and asset allocation: evidence from household and firm portfolios",
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",
author = "Thomas Kick and Benedikt Ruprecht and Enrico Onali and Klaus Schaeck",
year = "2014",
language = "English",
isbn = "978–3– 95729–022–9",
series = "Deutsche Bundesbank Discussion Paper Series",
publisher = "Deutsche Bundesbank Eurosystem",
number = "07/2014",
type = "WorkingPaper",
institution = "Deutsche Bundesbank Eurosystem",

}

Kick, T, Ruprecht, B, Onali, E & Schaeck, K 2014 'Wealth shocks, credit-supply shocks, and asset allocation: evidence from household and firm portfolios' Deutsche Bundesbank Discussion Paper Series, no. 07/2014, Deutsche Bundesbank Eurosystem.

Wealth shocks, credit-supply shocks, and asset allocation : evidence from household and firm portfolios. / Kick, Thomas; Ruprecht, Benedikt; Onali, Enrico; Schaeck, Klaus.

Deutsche Bundesbank Eurosystem, 2014. (Deutsche Bundesbank Discussion Paper Series; No. 07/2014).

Research output: Working paperDiscussion paper

TY - UNPB

T1 - Wealth shocks, credit-supply shocks, and asset allocation

T2 - evidence from household and firm portfolios

AU - Kick, Thomas

AU - Ruprecht, Benedikt

AU - Onali, Enrico

AU - Schaeck, Klaus

PY - 2014

Y1 - 2014

N2 - 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.

AB - 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.

KW - asset allocation

KW - sovereign debt crisis

KW - credit-supply shocks

KW - bank distress

M3 - Discussion paper

SN - 978–3– 95729–022–9

T3 - Deutsche Bundesbank Discussion Paper Series

BT - Wealth shocks, credit-supply shocks, and asset allocation

PB - Deutsche Bundesbank Eurosystem

ER -

Kick T, Ruprecht B, Onali E, Schaeck K. Wealth shocks, credit-supply shocks, and asset allocation: evidence from household and firm portfolios. Deutsche Bundesbank Eurosystem. 2014. (Deutsche Bundesbank Discussion Paper Series; 07/2014).