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The Determinants of Household Risky Asset Holdings: Australian Evidence on Background Risk and Other Factors#

  • Buly A Cardak

    ()

    (Department of Economics and Finance, La Trobe University)

  • Roger K. Wilkins

    ()

    (Melbourne Institute of Applied Economic and Social Research, University of Melbourne)

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/0015/130911/2008.05.pdf
File Function: First version, 2008.05.pdf
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Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2008.05.

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Length: 39 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:ltr:wpaper:2008.05
Contact details of provider: Web page: http://www.latrobe.edu.au/economics

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  1. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-72, March.
  2. Buly A Cardak & Roger K. Wilkins, 2008. "The Determinants of Household Risky Asset Holdings: Australian Evidence on Background Risk and Other Factors#," Working Papers 2008.05, School of Economics, La Trobe University.
  3. John Y. Campbell, 2006. "Household Finance," NBER Working Papers 12149, National Bureau of Economic Research, Inc.
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  7. Fratantoni, Michael C, 2001. "Homeownership, Committed Expenditure Risk, and the Stockholding Puzzle," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 241-59, April.
  8. Heaton, John & Lucas, Deborah, 2000. "Portfolio Choice in the Presence of Background Risk," Economic Journal, Royal Economic Society, vol. 110(460), pages 1-26, January.
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  17. Yamashita, Takashi, 2003. "Owner-occupied housing and investment in stocks: an empirical test," Journal of Urban Economics, Elsevier, vol. 53(2), pages 220-237, March.
  18. Miles S. Kimball, 1991. "Precautionary Motives for Holding Assets," NBER Working Papers 3586, National Bureau of Economic Research, Inc.
  19. Heaton, John & Lucas, Deborah, 1997. "Market Frictions, Savings Behavior, And Portfolio Choice," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 76-101, January.
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