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The Determinants of Household Risky Asset Holdings: Australian Evidence on Background Risk and Other Factors#

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  • Buly A Cardak

    ()
    (Department of Economics and Finance, La Trobe University)

  • Roger K. Wilkins

    ()
    (Melbourne Institute of Applied Economic and Social Research, University of Melbourne)

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 labour 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

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2008.05.

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Length: 39 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:ltr:wpaper:2008.05

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Keywords: Household Portfolios; Risky Asset Holdings; Background Risk; Credit Constraints; Financial Literacy EDIRC Provider-Institution: RePEc:edi:smlatau;

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  1. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1994. "Income Risk, Borrowing Constraints and Portfolio Choice," CEPR Discussion Papers 888, C.E.P.R. Discussion Papers.
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  5. Buly A Cardak & Roger K. Wilkins, 2008. "The Determinants of Household Risky Asset Holdings: Australian Evidence on Background Risk and Other Factors#," Working Papers 2008.05, School of Economics, La Trobe University.
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  18. 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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