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The portfolio structure of German households: A multinomial fractional response approach with unobserved heterogeneity

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  • Becker, Gideon

Abstract

What determines the risk structure of financial portfolios of German households? In this paper we estimate the determinants of the share of financial wealth invested in three broad risk classes. We employ a new econometric approach - the so called fractional multinomial logit model - which allows for joint estimation of shares while accounting for their fractional nature. We extend the model to allow for unobserved heterogeneity across households via maximum simulated likelihood. We find that self-assessed appetite for risk as well as the level of wealth have strong positive effects on the riskiness of the average household's portfolio. These findings largely stay true even after we control for the potential confounding effects of unobserved differences across households via correlated random effects.

Suggested Citation

  • Becker, Gideon, 2014. "The portfolio structure of German households: A multinomial fractional response approach with unobserved heterogeneity," University of Tübingen Working Papers in Business and Economics 74, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:74
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    More about this item

    Keywords

    household finance; portfolio composition; non-linear panel data model; fractional response model; unobserved heterogeneity;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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