IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Why Do Household Portfolio Shares Rise in Wealth?

  • Jessica A. Wachter
  • Motohiro Yogo

We develop a life-cycle consumption and portfolio choice model in which households have nonhomothetic utility over two types of goods, basic and luxury. We calibrate the model to match the cross-sectional and life-cycle variation in the basic expenditure share in the Consumer Expenditure Survey. The model explains the degree to which the portfolio share in risky assets rises in wealth in the cross-section of households in the Survey of Consumer Finances. For a given household, the portfolio share can fall in response to an increase in wealth, even though the model implies decreasing relative risk aversion. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1093/rfs/hhq092
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 23 (2010)
Issue (Month): 11 (November)
Pages: 3929-3965

as
in new window

Handle: RePEc:oup:rfinst:v:23:y:2010:i:11:p:3929-3965
Contact details of provider: Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Fax: 919-677-1714
Web page: http://www.rfs.oupjournals.org/
Email:


More information through EDIRC

Order Information: Web: http://www4.oup.co.uk/revfin/subinfo/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Harvard Institute of Economic Research Working Papers 2107, Harvard - Institute of Economic Research.
  2. Mankiw, N.G. & Zeldes, S.P., 1990. "The Consumption Of Stockholders And Non-Stockholders," Weiss Center Working Papers 23-90, Wharton School - Weiss Center for International Financial Research.
  3. Kim, Tong Suk & Omberg, Edward, 1996. "Dynamic Nonmyopic Portfolio Behavior," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 141-61.
  4. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
  5. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
  6. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
  7. Ana M. Aizcorbe & Arthur B. Kennickell & Kevin B. Moore, 2003. "Recent changes in U.S. family finances: evidence from the 1998 and 2001 Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-32.
  8. Alon Brav & George M. Constantinides & Christopher C. Geczy, 2002. "Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 793-824, August.
  9. Hu, Xiaoqing, 2005. "Portfolio choices for homeowners," Journal of Urban Economics, Elsevier, vol. 58(1), pages 114-136, July.
  10. Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
  11. Rui Yao, 2005. "Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 197-239.
  12. Stephen Zeldes, . "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," Rodney L. White Center for Financial Research Working Papers 20-86, Wharton School Rodney L. White Center for Financial Research.
  13. Nicholas Barberis, 2000. "Investing for the Long Run when Returns Are Predictable," Journal of Finance, American Finance Association, vol. 55(1), pages 225-264, 02.
  14. Markus K. Brunnermeier & Stefan Nagel, 2006. "Do Wealth Fluctuations Generate Time-varying Risk Aversion? Micro-Evidence on Individuals' Asset Allocation," NBER Working Papers 12809, National Bureau of Economic Research, Inc.
  15. Christopher J. Malloy & Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2009. "Long-Run Stockholder Consumption Risk and Asset Returns," Journal of Finance, American Finance Association, vol. 64(6), pages 2427-2479, December.
  16. John Y. Campbell & Luis M. Viceira, 1996. "Consumption and Portfolio Decisions When Expected Returns are Time Varying," NBER Working Papers 5857, National Bureau of Economic Research, Inc.
  17. Christopher D. Carroll & Andrew A. Samwick, 1995. "The Nature of Precautionary Wealth," NBER Working Papers 5193, National Bureau of Economic Research, Inc.
  18. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
  19. Luis M. Viceira, 1999. "Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income," NBER Working Papers 7409, National Bureau of Economic Research, Inc.
  20. John Y. Campbell & Martin Feldstein, 2001. "Risk Aspects of Investment-Based Social Security Reform," NBER Books, National Bureau of Economic Research, Inc, number camp01-1.
  21. Yacine Ait-Sahalia & Jonathan A. Parker & Motohiro Yogo, 2001. "Luxury Goods and the Equity Premium," NBER Working Papers 8417, National Bureau of Economic Research, Inc.
  22. Christopher D. Carroll, 1996. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," NBER Working Papers 5788, National Bureau of Economic Research, Inc.
  23. Luca Benzoni & Pierre Collin-Dufresne & Robert S. Goldstein, 2007. "Portfolio choice over the life-cycle when the stock and labor markets are cointegrated," Working Paper Series WP-07-11, Federal Reserve Bank of Chicago.
  24. Bertaut, Carol C. & Haliassos, Michael, 1997. "Precautionary portfolio behavior from a life-cycle perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1511-1542, June.
  25. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
  26. Joseph E. Stiglitz, 1969. "A Note on Behavior towards Risk with Many Commodities," Cowles Foundation Discussion Papers 262, Cowles Foundation for Research in Economics, Yale University.
  27. Yeung Lewis Chan & Leonid Kogan, 2002. "Catching Up with the Joneses: Heterogeneous Preferences and the Dynamics of Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1255-1285, December.
  28. Valery Polkovnichenko, 2007. "Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk," Review of Financial Studies, Society for Financial Studies, vol. 20(1), pages 83-124, January.
  29. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  30. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
  31. Heaton, John & Lucas, Deborah, 1997. "Market Frictions, Savings Behavior, And Portfolio Choice," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 76-101, January.
  32. Ogaki, Masao, 1992. "Engel's Law and Cointegration," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 1027-46, October.
  33. Wachter, Jessica A., 2002. "Portfolio and Consumption Decisions under Mean-Reverting Returns: An Exact Solution for Complete Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(01), pages 63-91, March.
  34. Carol Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).
  35. Pakos, Michal, 2004. "Asset Pricing with Durable Goods and Nonhomothetic Preferences," MPRA Paper 26167, University Library of Munich, Germany.
  36. Hanoch, Giora, 1977. "Risk Aversion and Consumer Preferences," Econometrica, Econometric Society, vol. 45(2), pages 413-26, March.
  37. Stiglitz, Joseph E, 1969. "Behavior Towards Risk with Many Commodities," Econometrica, Econometric Society, vol. 37(4), pages 660-67, October.
  38. Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, vol. 30(2), pages 585-603, May.
  39. Wharton School & Nikolai Roussanov, 2008. "Diversification and its Discontents: Idiosyncratic and Entrepreneurial Risk in the Quest for Social Status," 2008 Meeting Papers 924, Society for Economic Dynamics.
  40. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, 08.
  41. Luca Benzoni & Pierre Collin-Dufresne & Robert S. Goldstein, 2007. "Portfolio Choice over the Life-Cycle when the Stock and Labor Markets Are Cointegrated," Journal of Finance, American Finance Association, vol. 62(5), pages 2123-2167, October.
  42. John Y. Campbell & Martin Feldstein, 2001. "Introduction to "Risk Aspects of Investment-Based Social Security Reform"," NBER Chapters, in: Risk Aspects of Investment-Based Social Security Reform, pages 1-10 National Bureau of Economic Research, Inc.
  43. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  44. Balduzzi, Pierluigi & Lynch, Anthony W., 1999. "Transaction costs and predictability: some utility cost calculations," Journal of Financial Economics, Elsevier, vol. 52(1), pages 47-78, April.
  45. Francisco Gomes & Alexander Michaelides, 2005. "Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence," Journal of Finance, American Finance Association, vol. 60(2), pages 869-904, 04.
  46. Mark Bils & Peter J. Klenow, 1998. "Using Consumer Theory to Test Competing Business Cycle Models," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 233-261, April.
  47. Lars A. Lochstoer, 2009. "Expected Returns and the Business Cycle: Heterogeneous Goods and Time-Varying Risk Aversion," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 5251-5294, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:23:y:2010:i:11:p:3929-3965. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.