Working Paper: CEPR ID: DP13906
Authors: Ralph Koijen; Francois Koulischer; Benot Nguyen; Motohiro Yogo
Abstract: Using new data on security-level portfolio holdings by investor type and across countriesin the euro area, we study portfolio rebalancing during the European Central Bank’s(ECB) purchase programme that started in March 2015. To quantify changes in riskconcentration, we estimate the evolution of the distribution of duration, government,and corporate credit risk exposures across investor sectors and regions until the lastquarter of 2017. Using these micro data, we show that 60% of ECB purchases are soldby non-euro area investors, and we do not find evidence that risks get concentrated incertain sectors or geographies. We estimate a sector-level asset demand system usinginstrumental variables to connect the dynamics of portfolio rebalancing to asset prices.Our estimates imply that government yields declined by 47bp, on average, but theestimates range from -28bp to -57bp across countries.
Keywords: Quantitative Easing; Flow of Risk; Portfolio Rebalancing; Risk Concentration
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| no risk concentration (D81) | diffusion of risk across the financial system (F65) |
| ECB purchases (E58) | decline in government yields (E43) |
| portfolio rebalancing activities (G11) | decline in government yields (E43) |
| ECB purchases (E58) | demand curves of various investor sectors (G19) |
| cross-border effect of ECB purchases (F42) | government yields (H63) |