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Crisis Stress for the Diversity of Financial Portfolios - Evidence from European Households

Referierte Aufsätze Web of Science

Dorothea Schäfer, Andreas Stephan, Henriette Weser

In: International Review of Economics and Finance 83 (2023), S. 330-347


In this paper, we investigate how European households changed the diversity of their financial portfolios in response to the Great Financial and the subsequent European Debt Crisis. For this purpose we apply a Difference-in-Differences (DiD) approach estimated as a correlated random effects (CRE) model to six waves of the Survey of Health, Ageing and Retirement in Europe (SHARE). We find that households holding risky assets responded to the twin European financial crises with lower levels of diversity in their financial portfolios. We also reveal their flight to liquid and safe bank accounts at the expense of mutual funds and stocks. The downward trend peaked in 2015. Only after 2015, when the Eurozone debt crisis was definitely over, those households’ financial portfolios became more diverse again. The findings are highly robust across gender, income, and wealth quartiles, as well as across most countries. Such behavior is most likely a mistake with negative wealth consequences for the households and for the society. Programs to increase portfolio diversity literacy could support households in avoiding such behavior in the next crisis.

JEL-Classification: D31;G51;G01;G40
Keywords: Financial crisis, European debt crisis, financial portfolio diversity, individual investment behavior, stocks, mutual funds, flight-to-liquidity, background risk, DiD, CRE