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Is relative risk aversion constant? A reinterpretation of recent asset allocation findings at the micro level

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  • Liu, Desu

Abstract

Recent work about risk preferences at the micro level mainly finds that changes in liquid wealth over time do not affect or have a positive effect on the liquid risky asset share. This paper embeds riskless noncapital income in standard portfolio choice models, and shows that exogenous difference habit better accounts for these findings concerning asset allocations with respect to wealth changes than the well-known preference of constant relative risk aversion itself.

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  • Liu, Desu, 2012. "Is relative risk aversion constant? A reinterpretation of recent asset allocation findings at the micro level," Economics Letters, Elsevier, vol. 117(1), pages 250-252.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:250-252
    DOI: 10.1016/j.econlet.2012.05.021
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    References listed on IDEAS

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    More about this item

    Keywords

    Exogenous difference habit; Noncapital income; Relative risk aversion; Risky asset share;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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