Heterogeneity in asset allocation decisions: Empirical evidence from Switzerland Drobetz, Wolfgang; Kugler, Peter; Wanzenried, Gabrielle; ...

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Drobetz, Wolfgang ; Kugler, Peter ; Wanzenried, Gabrielle ; Zimmermann, Heinz
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International Review of Financial Analysis
Business cycles -- Analysis; Banking industry -- Analysis; Commercial banks, not elsewhere classified
To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.irfa.2008.10.001 Byline: Wolfgang Drobetz (a), Peter Kugler (b), Gabrielle Wanzenried (c), Heinz Zimmermann (d) Keywords: Asset allocation; Stock return predictability; Business cycle; Investor heterogeneity; Vector error correction Abstract: We analyze the heterogeneity in asset allocation decisions of different investor groups in response to changes in the macroeconomic environment. Using a new data set that includes the monthly portfolio holdings of private, commercial, and institutional investors deposited with Swiss banks, we estimate the relationship between equity and bond holdings and common business cycle indicators. Regression analysis indicates that private investors do not systematically move from stocks into bonds by selling stocks to institutional investors and purchasing bonds from them in adverse macroeconomic states. A VAR-error correction framework including cointegration and error correction restrictions suggests that the investment behavior of commercial investors leads and private investors follow in their investment decisions only slowly over time. The asset allocation decisions of institutional investors are not affected by the actions of private and commercial investors. Our results refute a principle of "institutional irrelevance". Author Affiliation: (a) Institute of Finance, University of Hamburg, Von-Melle-Park 5, 20146 Hamburg, Germany (b) Department of Economics, University of Basel, Petersgraben 51, 4003 Basel, Switzerland (c) Institute of Financial Services Zug, Lucerne University of Applied Sciences and Arts, Grafenauweg 10, 4332 Zug, Switzerland (d) Department of Finance, University of Basel, Holbeinstrasse 12, 4003 Basel, Switzerland Article History: Received 10 October 2006; Revised 2 October 2008; Accepted 4 October 2008
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