Cyclical Investment Behaviour Across Financial Institutions

Download or read book Cyclical Investment Behaviour Across Financial Institutions written by Yannick Timmer and published by . This book was released on 2017 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the investment behavior of different financial institutions in debt securities with a particular focus on their response to price changes. For identification, I use 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 buy securities when their prices fall and vice versa. While investment funds and banks act counter-cyclicaly; 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.