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Wealth Shocks and Portfolio Choice

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Abstract

We use new euro area representative data from the Consumer Expectations Survey (CES) to elicit household-specific propensities to invest and consume out of positive wealth shocks. Using a randomized assignment of hypothetical lottery gains ranging from 5,000 to 50,000 euros and a realistic menu of consumption, saving and asset choices, we estimate the causal effect of wealth shocks on risky asset ownership and conditional asset shares. Wealth shocks have a positive effect on stockholding (about a 10 percentage points increase for the largest wealth shock). The majority of households in the sample do not participate in the stock market, even after a large increase in wealth. The conditional asset share invested in stocks does not depend on the size of wealth shocks, with the small exception of very high values of the latter, for which the conditional risky asset share slightly increases. This result is consistent with the notion that preferences are characterized by constant relative risk aversion for the vast majority of risky asset investors.

Suggested Citation

  • Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Geoff Kenny, 2022. "Wealth Shocks and Portfolio Choice," CSEF Working Papers 652, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:652
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    File URL: https://www.csef.it/WP/wp652.pdf
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    Cited by:

    1. Armantier, Olivier & Foncel, Jérôme & Treich, Nicolas, 2023. "Insurance and portfolio decisions: Two sides of the same coin?," Journal of Financial Economics, Elsevier, vol. 148(3), pages 201-219.

    More about this item

    Keywords

    Household finance; Stock market participation; Risk aversion; Consumer Expectations Survey.;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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