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The determinants of household risky asset holdings: Australian evidence on background risk and other factors

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  • Cardak, Buly A.
  • Wilkins, Roger

Abstract

We study the portfolio allocation decisions of Australian households using the relatively new Household, Income and Labour Dynamics in Australia (HILDA) Survey. We focus on household allocations to risky financial assets. Our empirical analysis considers a range of hypothesised determinants of these allocations. We find background risk factors posed by labor income uncertainty and health risk are important. Credit constraints and observed risk preferences play the expected role. A positive age gradient is identified for risky asset holdings and home-ownership is associated with greater risky asset holdings. A unifying theme for many of our empirical findings is the important role played by financial awareness and knowledge in determining risky asset holdings. Many non-stockholding households appear to lack the experience and financial literacy that might enable them to benefit from direct investment in stocks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 5 (May)
Pages: 850-860

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:5:p:850-860

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Household portfolios Risky asset holdings Background risk Credit constraints Financial literacy;

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  1. Carol C. Bertaut, 1998. "Stockholding Behavior Of U.S. Households: Evidence From The 1983-1989 Survey Of Consumer Finances," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 263-275, May.
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  18. Hochgürtel, S., 1997. "Precautionary Motives and Portfolio Decisions," Discussion Paper 1997-55, Tilburg University, Center for Economic Research.
  19. John Heaton & Deborah Lucas, 2000. "Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk," Journal of Finance, American Finance Association, vol. 55(3), pages 1163-1198, 06.
  20. Fratantoni, Michael C., 1998. "Homeownership and Investment in Risky Assets," Journal of Urban Economics, Elsevier, vol. 44(1), pages 27-42, July.
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