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Household Investment Asset Variation And Wealth

Author

Listed:
  • Nathaniel J. Harness
  • Michael M. Finke
  • Swarn Chatterjee

Abstract

Frequent shifting of household portfolio composition may erode wealth due to poor market timing and transaction costs. If household preferences are stable, the optimal wealth maximizing strategy is periodically rebalancing to maintain a relatively constant ratio of investment assets to wealth from year to year. However, some households may fail to rebalance, or may change their preference for broad asset classes because of inexperience or behavioral biases. This research tests the impact of variation in the capital accumulation ratio (CAR), a commonly used ratio of investment assets to net worth, on changes in wealth using quantile regression. Using quantile regression, we find that having a high standard deviation of CAR results in the greatest losses among those with the lowest change in wealth between 1994 and 2004.

Suggested Citation

  • Nathaniel J. Harness & Michael M. Finke & Swarn Chatterjee, 2010. "Household Investment Asset Variation And Wealth," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 1-11.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:1-11
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    References listed on IDEAS

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    Cited by:

    1. Yoku Mimura, 2013. "Variations in Retirement Account Holdings: Evidence from Native and Immigrant Women in the U.S," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(5), pages 11-22.

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    More about this item

    Keywords

    Investment variation; portfolio choice; capital accumulation;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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