Heterogeneity in Asset Allocation Decisions:Empirical Evidence from Switzerland

We analyze the asset allocation decisions of different investor groups and investigate how their investmentbehavior changes with macroeconomic conditions. Using a new data set that includes themonthly portfolio holdings of private, commercial, and institutional investors deposited with Swissbanks between November 1998 and November 2004, we regress their equity and bond holdings oncommon business cycle indicators. Against the commonly held belief, private investors do not systematicallymove from equities into bonds by selling equities to institutional investors and purchasingbonds from them in bad states. Moreover, based on a vector error regression framework includingcointegration and error correction restrictions, we show that the behavior of commercial investorsleads and private investors adopt their investment decisions only slowly over time. The investmentbehavior of institutional investors is not systematically affected by the actions of private andcommercial investors. We provide several (non-mutually exclusive) explanations for our findings.