Wealth and portfolio composition: Theory and evidence (original) (raw)

An empirical analysis of aggregate household portfolios

Journal of Banking & Finance, 2008

This paper analyzes the important time variation in US aggregate household portfolios. To do so, we first use flexible descriptions of preferences and investment opportunities to derive household optimal decision rules that nest static, myopic, and non-myopic portfolio allocations. We then compare these rules to the data through formal statistical analysis. Our main results reveal that: (i) static and myopic investment behaviors are rejected, (ii) non-myopic portfolio allocations are supported, and (iii) the Fama-French factors best explain empirical portfolio shares.

The demand for risky assets: Sample selection and household portfolios

Journal of Econometrics, 2000

We estimate a microeconomic model of household asset demands that allows for the fact that households typically have zero holdings of most assets. The adjustments for non-observed heterogeneity generalize methods developed by Dubin and McFadden 1984. Simulating our model using a random sample of US households, we examine distributional and demographic e ects on macroeconomic demands for money, stocks and bonds. JEL classi cation: C35, E41, G11.

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.

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.

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

Investment portfolios and human wealth

1995

The optimal proportion of a household's investment portfolio that should be in risky assets such as stocks depends on what proportion of total wealth, including human wealth, the investment portfolio represents. This article estimates the total wealth of households in the U.S. Survey of Consumer Finances, and finds that financial assets represent less than 2% of the total wealth of most households. Only the elderly are likely to have investment portfolios representing a high proportion of total wealth.

Saving Accounts versus Stocks and Bonds in Household Portfolio Allocation

The Scandinavian Journal of Economics, 1997

We study the structure of household portfolios of financial wealth by analyzing both the determinants of total financial wealth and the choice between risky (stocks and bonds) and riskfree assets (saving accounts). The econometric specification is a generalized trivariate Tobit model, estimated on a cross section of 3,077 households in the Netherlands in 1988. We account for endogeneity of financial wealth and for selectivity due to nonreporting. Results show that the level of financial wealth and the marginal tax rate are major determinants of the allocation between riskfree and risky assets. * We are grateful to Research International Nederland (RIN) for providing the data, and to two referees for helpful suggestions. All remaining errors are ours. Hochguertel acknowledges financial support from the VSB Savings Project and van Soest's research was made possible by a fellowship from the Netherlands Royal Academy of Arts and Sciences (KNAW).

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.

Household Portfolios in the Netherlands

SSRN Electronic Journal, 2001

We describe and analyse the portfolio structure of Dutch households using micro panel data from the CentER Savings Survey, 1993-1998. The data allows for a distinction between many types of assets. Moreover, we have information on mortgage debt, consumer debt, etc. We analyse the composition of household portfolios and the level of portfolio diversification, and its relation to age, birth cohort, and education level. We compare the ownership rates and amounts held in our survey data with published statistics derived from National Accounts and administrative data. Using discrete choice models and selection models, we relate asset ownership and asset shares to background variables such as age, household composition, education, etc. Moreover, we include subjectively measured explanatory variables reflecting attitudes towards risk and the degree of information the respondent has on financial assets. We consider static as well as dynamic panel data models.

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.