Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130754
Authors: 
Timmer, Yannick
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 08/2016
Abstract: 
This paper examines the investment behavior in debt securities across financial institutions with a particular focus on how they respond to price changes. For identification, we use security-level data from the German Microdatabase Securities Holdings Statistics. Our results suggest that banks and investment funds may destabilize the market by responding in a pro-cyclical manner to price changes. For investment funds, this effect was even stronger during the crisis and periods of high uncertainty. Insurance companies and pension funds buy securities after a drop in prices. They also buy securities that are trading at a discount and sell securities that are trading at premium. This counter-cyclical behavior may stabilize markets whenever prices have been pushed away from fundamentals. Since our results suggest that institutions with impermanent balance sheet characteristics may exacerbate price dynamics, it is of crucial importance for financial stability to monitor the investor base as well as the balance sheets of both levered and non-levered investors.
Subjects: 
Cyclicality
Portfolio Allocation
Financial Stability
Debt Capital Flows
JEL: 
F32
G11
G15
G20
ISBN: 
978-3-95729-242-1
Document Type: 
Working Paper

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