Asset allocation and monetary policy: Evidence from the eurozone
Journal
Journal of Financial Economics
Journal Volume
120
Journal Issue
2
Pages
309
Date Issued
2016-05-01
Author(s)
Hau, Harald
Abstract
© 2016. The eurozone has a single short-term nominal interest rate, but monetary policy conditions measured by real short-term interest rates varied substantially across countries in the period 2003-2010. We use this cross-country variation in the (local) tightness of monetary policy to examine its influence on equity and money market flows. In line with a powerful risk-shifting channel, we find that fund investors in countries with decreased real interest rates shift their portfolio investment out of the money market and into the riskier equity market, causing significant equity price inflation in countries where investment home bias is the strongest.
Subjects
Asset price inflation | Monetary policy | Risk-shifting | Taylor rule residuals
Publisher
ELSEVIER SCIENCE SA
Type
journal article