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Will the shift to stocks and bonds by households be destabilizing?

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Abstract

In the last decade, households have tended to shift out of bank deposits and money market funds and into stocks and bonds. Some analysts and journalists worry that the shift could be destabilizing to the economy and financial markets. Consumption spending, it is argued, might fluctuate more because households have invested in riskier stocks and bonds. Financial markets also could be more volatile because households might behave as short-sighted novices who will sell assets in panic at the first dip in the market. In addition, the pension and mutual funds through which households invest tend to trade more actively than households. The increasing role of such heavy traders, it is feared, might increase financial market volatility.> Morgan argues that these concerns, though understandable, are exaggerated. Households appear to be saving for retirement and are therefore likely to ride out short-term bumps in the market. Moreover, the market role of institutional investors has been trending up for 30 years without any accompanying trend in volatility.

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  • Donald P. Morgan, 1994. "Will the shift to stocks and bonds by households be destabilizing?," Economic Review, Federal Reserve Bank of Kansas City, vol. 79(Q II), pages 31-44.
    • Handle: RePEc:fip:fedker:y:1994:i:qii:p:31-44:n:v.79no.2
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    Cited by:

    1. John V. Duca, 2005. "Why Have U.S. Households Increasingly Relied On Mutual Funds To Own Equity?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(3), pages 375-396, September.
    2. Shobhit Goel & Pawan Kumar, 2024. "Indian Mutual Fund Industry: Is 2014 A Turning Point?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 27(3), pages 527-556, July.
    3. William R. Keeton, 1998. "Are rural banks facing increased funding pressures? : evidence from Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, vol. 83(Q II), pages 43-67.
    4. Franklin Edwards & Xin Zhang, 1998. "Mutual Funds and Stock and Bond Market Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 13(3), pages 257-282, June.
    5. William R. Keeton & Anne D. McKibbin, 1997. "Changes in the depository industry in Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, vol. 82(Q III), pages 55-76.

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