Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/225026 
Year of Publication: 
2020
Series/Report no.: 
DIW Discussion Papers No. 1899
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
Since the 2008 Lehman bankruptcy, it is clearly shown that global economic and financial crises present major challenges to private households, requiring from them, a high level of shock absorption capacity. According to the old adage, "Do not put all the eggs in one basket", resilience depends, to a large extent on financial diversification. So far, especially for Europe, little is known about whether and how the Great Financial Crisis (GFC) affected the diversity of private households' investment portfolios. We tackle this research gap and explore the impact of the GFC on portfolio diversity of European private households. Our European focus complements Sierminska and Silber (2019) who explore the diversification behaviour of US households after the Lehman insolvency. Our study reveals a significant decrease in the diversity of financial portfolios. This finding is robust across distinct model specifications. In response to the GFC, evidence suggests that European households adjusted the diversity of their financial portfolio in the opposite directions to that of US households.
Subjects: 
financial and economic crisis
household finance
portfolio diversification
Shannon entropyindex
Gini-Simpson diversity index
background risk
risk aversion
JEL: 
D14
G11
G01
G40
Document Type: 
Working Paper

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