An empirical analysis of aggregate household portfolios (original) (raw)

Diversification or Concentration? An Empirical Analysis of Household Portfolio Allocation Practices

1998

This article finds that well-diversified portfolios are rare among households owning discretionary financial assets. Most households typically concentrate their portfolios in a single asset class. In 1995, two thirds had average allocations over 90% in constant dollar instruments, while 15% had portfolios dominated by a risky category. After controlling for other variables, differences were found in risk tolerance, shopping behavior, interest rate expectations, and investment goals between groups of households with dissimilar portfolio types. Financial advisors might use this information to develop educational strategies best suited for various portfolio orientations.

Are Household Portfolios Efficient? An Analysis Conditional on Housing

Journal of Financial and Quantitative Analysis, 2003

In this paper we argue that standard tests of portfolio efficiency are biased because they neglect the existence of illiquid wealth. In the case of household portfolios, the most important illiquid asset is housing: if housing stock adjustments are costly and therefore infrequent, we show how the dynamic optimization problem produces optimal portfolios in periods of no adjustment that are affected by housing price risk (through a hedge term). When the housing stock is not adjusted, we argue that tests for portfolio efficiency of financial assets must then be run conditionally upon housing wealth. In our application, we use Italian household portfolio data from SHIW 1998 and time series data on financial asset and housing stock returns to assess whether actual portfolios are efficient. We first consider purely financial portfolios and portfolios that also treat the housing stock as another asset. We then consider the consequences of treating the housing stock as given and test for efficiency in this framework. Our empirical results support the view that the presence of housing wealth plays an important role in determining whether portfolios chosen by home-owners are efficient.

Household Portfolio Choice and Diversification Strategies

2005

Understanding how individuals allocate their financial wealth is of primary interest to researchers, policy makers, and financial institutions. Researchers have been concerned that individuals who do not participate to financial markets do not enjoy the equity premium, and therefore accumulate less wealth than those who invest in stocks.

Households' portfolio diversification

2010

Presentazione: This paper performs an efficiency analysis of households portfolios based on the comparison of observed portfolios with the mean-variance frontier of assets returns. Data on household portfolios are drawn from a representative sample of the Italian population with at least a bank account.

How Does Households' Wealth Affect Portfolio Choices?

EUROPEAN RESEARCH STUDIES JOURNAL, 2020

The aim of this paper is to identify the determinants of households' preferences regarding financial asset allocation. It investigates the structures of households' financial asset portfolios in 15 euro area countries. It assumes three risk classes and presents a comprehensive picture of an average portfolio at the domestic and euro area levels. Methodology: The research is based on the Eurosystem HFCS data. It applies the fractional multinomial logit model which allows analysing parallel movements in all shares of portfolio components resulting from the changes in households' wealth. Findings: The results obtained allow drawing conclusions about the heterogeneity of households' investment preferences on the financial markets across the euro area. However, in all analysed member countries, deposits can be perceived as a component of primary importance as well as a substitute to voluntary pension plans and whole life insurance contracts. The results from the fractional multinomial logit model lead to a general finding that wealthier households are more open to risk exposure than those less affluent. The most useful wealth measures regarding the aim of the study were net wealth, total financial assets, and annual gross incomes. Their adoption to the model allowed identifying the countries like France, Finland, or Italy where the effect of the deepening changes in portfolio structure caused by the continuous increase in households' wealth was identified. Additionally, Austria, Finland, France, and Italy were recognised as the member states of the most significant differences in this regard between the most distant classes of households-the poorest and the most affluent. Practical implications: This study allows crosscountry comparison of the investment preferences of the households characterised by similar financial standing. The results obtained are relevant to the discussion on households' portfolio choices, and growth potentials of the retail financial market in the euro area. Originality/Value: The main contribution of this study to the literature is the knowledge on how the differentiated wealth of the euro area households influences the risk profiles of their financial asset portfolios.

Stock market expectations and portfolio choice of American households

2009

Abstract Using survey data on expectations and the composition of household savings, this paper aims at explaining the stockholding puzzle: the low stock market participation despite high historical performance of stocks. We estimate a joint model of stockholding and survey answers, both based on stock market expectations. The estimated level of risk tolerance that links subjective beliefs to stockholding is moderate, supporting to the validity of our measures of subjective expectations.

The Dynamics of Individual Financial Portfolio Decisions

2008

In developed markets households have access to a wide array of investment opportunities, from bank accounts to individual bonds and equities, as well as mutual funds, life insurance policies and other more sophisticated financial products. Aggregate data on household financial assets based on Central Bank National Account statistics seem to show that the economic development of a country and of its financial sector go hand in hand with increased household financial asset accumulation and portfolio sophistication.

Stock market expectations and portfolio choice of American households. Work in progress

2008

Using survey data on expectations and the composition of household savings, this paper aims at explaining the stockholding puzzle: the low stock market participation despite high historical performance of stocks. We estimate a joint model of stockholding and survey answers, both based on stock market expectations. The estimated level of risk tolerance that links subjective beliefs to stockholding is moderate, supporting to the validity of our measures of subjective expectations. Heterogeneity in expectations leads to heterogeneity in stockholding, and low average expectations, high uncertainty, and large heterogeneity in expectations explain much of the stockholder puzzle. JEL Codes: D12, D8

Short-run variations in households' financial market expectations

Despite its importance for the analysis of life-cycle behavior and, in particular, retirement planning, stock ownership by private households is poorly understood. Among other approaches to investigate these puzzles, recent research has started to elicit private households' expectations of stock market returns. This paper reports on findings from a study that repeatedly collected data both on households' financial markets expectations (subjective probabilities of gains or losses) and on their portfolio choices (i.e., actual trades) over a half-year period at relatively short intervals of a few weeks. We document substantial heterogeneity in financial market expectations. Expectations are correlated with various measures of portfolio choice and trading behaviour; generally, those who have higher income, a larger share of risky assets, and trade more often are more optimistic about the stock market. There is also some evidence that households' subjective stock market expec...