Sectorial Holdings and Stock Prices: The Household-bank Nexus

Abstract

We analyze the evolution and price implications of aggregate sectorial holdings of stocks, using detailed information on the universe of publicly traded stocks in the euro area. We document that: i) households’ (HH) direct holdings represent a higher fraction of total ownership in domestic bank stocks than in non-financial corporation (NFC) stocks; ii) HH holdings of stocks increase (decrease) following a decline (increase) in the stock price, especially for domestic bank stocks; and iii) an increase in domestic HH holdings is followed by future (persistent) increases in the price of NFC stocks, but not for bank stocks. Moreover, during equity issuances, an increase in the share of domestic HH holdings is followed by a future (persistent) decrease in the stock price of bank stocks, but not for NFC stocks. Our results are consistent with HH being liquidity providers in the stock market, and at the same time subject to negative information asymmetries. We argue that this latter effect is more prevalent in domestic bank stocks than in NFC given the close relationships between HH and banks.