Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193525
Authors: 
Timmer, Yannick
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series 18
Abstract: 
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, 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. In contrast, insurance companies and pension funds buy securities when their prices fall and vice versa. While investment funds and banks sell securities that are trading at a discount and whose prices are falling, they buy securities that are trading at premium and whose prices are rising. The opposite is the case for insurance companies and pension funds. This counter-cyclical investment behavior of insurance companies and pension funds 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
GVAR
JEL: 
F32
G11
G15
G20
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-45-1
Document Type: 
Working Paper
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