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The Determinants of Household Risky Asset Holdings: Background Risk and Other Factors

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  • Buly A Cardak

    ()
    (School of Economics, 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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File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0020/130907/2008.01.pdf
File Function: First version, 2008.01.pdf
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Bibliographic Info

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2008.01.

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Length: 37 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:trb:wpaper:2008.01

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Web page: http://www.latrobe.edu.au/economics
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Keywords: Household Portfolios; Risky Asset Holdings; Background Risk; Credit Constraints; Financial Literacy;

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  1. Stefan Hochguertel, 2003. "Precautionary motives and portfolio decisions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 61-77.
  2. Campbell, John, 2006. "Household Finance," Scholarly Articles 3157877, Harvard University Department of Economics.
  3. Mervyn A. King & Jonathan I. Leape, 1987. "Asset Accumulation, Information, and the Life Cycle," NBER Working Papers 2392, National Bureau of Economic Research, Inc.
  4. Sule Alan, 2006. "Precautionary wealth accumulation: evidence from Canadian microdata," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1105-1124, November.
  5. S. Illeris & G. Akehurst, 2002. "Introduction," The Service Industries Journal, Taylor & Francis Journals, vol. 22(1), pages 1-3, January.
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