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Trends in German households’ portfolio behavior - assessing the importance of age- and cohort-effects

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  • Mathias Sommer

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    (Munich Center for the Economics of Aging (MEA))

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    Abstract

    We start out from a comparison of aggregate trends in German households’ portfolio shares and participation rates as they derive from micro data and from the National Accounts. We find the broad trends supported by both data sources. By international comparison the portfolio share of safe investments with banks in Germany has always been high. It is continuously and strongly declining though. Life insurance has gained substantial importance since the 1960s. In the 1990s it lost some of its previous dominance with the rise of stocks and mutual funds. We find that the popularity of mutual funds continued through the stock market downturn. The baisse caused rather few investors to finally quit on direct investments in the stock market. Looking at the underlying developments at the age- and cohort-level, we aim to compare empirical life-cycle trajectories with the implications of theoretical models and assess the importance of age- and cohort-effects in the observed aggregate trends. We find the rising importance of securities as well as the declining share of saving accounts to be prominent at almost all ages. We observe a declining importance of life insurance for the oldest cohorts and – somewhat surprisingly – for the youngest cohorts. Last, we use a decomposition of the observed trends into age- and cohort-effects and highlight the crucial assumptions that there is a unique age-profile and cohort differences all take the form of shifts to this age-profile. We argue that both assumptions might well be at odds with theoretical considerations and therefore harm the desired interpretation.

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    Bibliographic Info

    Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 05082.

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    Date of creation: 21 Jun 2005
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    Handle: RePEc:mea:meawpa:05082

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    Postal: Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy, Amalienstraße 33, 80799 München, Germany
    Phone: +49/89/38602.442
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    Cited by:
    1. Richard Ochmann, 2010. "Differential Income Taxation and Household Asset Allocation," Discussion Papers of DIW Berlin 1058, DIW Berlin, German Institute for Economic Research.
    2. Mathias Sommer, 2007. "Savings motives and the effectiveness of tax incentives – an analysis based on the demand for life insurance in Germany," MEA discussion paper series 07125, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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