We show that global asset reallocations of U.S. fund investors obey a strong factor
structure, with two factors accounting for more than 90% of the overall variation. The
first factor captures switches between U.S. bonds and equities. The second reflects
reallocations from U.S. to international assets. Portfolio allocations respond to U.S.
monetary policy, most prominently around FOMC events when institutional investors
reallocate from basically all other asset classes to U.S. equities. Reallocations of both
retail and institutional investors show return-chasing behavior. Institutional investors
tend to reallocate toward riskier, high-yield fixed income segments, consistent with a
search for yield.
https://www.bis.org/publ/work497.pdf
https://www.bis.org/publ/work497.pdf