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Equity culture and household behavior

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  • Michael Haliassos
  • Christis Hassapis

Abstract

Equity culture has spread among households on both sides of the Atlantic. We study likely effects of equity culture on the behavior of households entering the stock market. Without borrowing constraints, the improved prospects arising from the equity premium tend to dominate the increase in riskiness of future income streams. This encourages entrants to increase consumption, borrowing, and precautionary wealth accumulation, and to reduce net financial wealth. Whether borrowing-constrained entrants will tend to increase consumption depends on risk aversion and on constraint tightness. Borrowing constraints can reduce, eliminate, or reverse the tendency of entrants to hold larger precautionary wealth buffers. Copyright 2002, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 54 (2002)
Issue (Month): 4 (October)
Pages: 719-745

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Handle: RePEc:oup:oxecpp:v:54:y:2002:i:4:p:719-745

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Cited by:
  1. Luigi Guiso & Michael Haliassos & Tullio Jappelli, 2002. "Household Stockholding in Europe: Where Do We Stand and Where Do We Go?," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 0209, University of Cyprus Department of Economics.
  2. Kapteyn, Arie & Teppa, Federica, 2011. "Subjective measures of risk aversion, fixed costs, and portfolio choice," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(4), pages 564-580, August.
  3. Antonio Torrero Mañas, 2005. "The increasing relevance of the stock market in the world: A new scenario," Working Papers, Instituto Universitario de Análisis Económico y Social 01/05, Instituto Universitario de Análisis Económico y Social.
  4. Kapteyn, A. & Teppa, F., 2002. "Subjective Measures of Risk Aversion and Portfolio Choice," Discussion Paper, Tilburg University, Center for Economic Research 2002-11, Tilburg University, Center for Economic Research.
  5. Sònia Muñoz, 2006. "Wealth Effects in Europe," IMF Working Papers, International Monetary Fund 06/30, International Monetary Fund.

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