Portfolios of the Rich
Recent research has shown that rich' households save at much higher rates than others (see Carroll (2000); Dynan, Skinner, and Zeldes (1996); Gentry and Hubbard (1998); Huggett (1996); Quadrini (1999)). This paper documents another large difference between the rich and the rest of the population: portfolios of the rich are heavily skewed toward risky assets, particularly investments in their own privately held businesses. The paper explores three possible explanations of these facts. First, perhaps there is exogenous variation in risk tolerance, so that highly risk tolerant house-holds engage in high-risk, high-return activities, and the risk-lovers who are lucky constitute the rich. A second possibility is that capital market imperfections a la Gentry and Hubbard (1998)and Quadrini (1999) require entrepreneurial activities to be largely self-financed, and these same imperfections imply that entreprenurial investment will yield high average returns. The final possibility is that wealth enters households' utility functions directly as a luxury good as in Carroll (2000) (one interpretation is that this reflects the utility of anticipated bequests), implying that risk aversion declines as wealth rises. The paper concludes that the overall pattern of facts suggests both Carroll-style utility and Gentry/Hubbard-Quadrini style capital market imperfections are important.
|Date of creation:||Aug 2000|
|Date of revision:|
|Publication status:||published as Guiso, Luigi, Michael Haliassos, and Tullio Jappelli (eds.) Household portfolios. Cambridge and London: MIT Press, 2002.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- Oswald, Andrew, 1997.
"Happiness and Economic Performance,"
The Warwick Economics Research Paper Series (TWERPS)
478, University of Warwick, Department of Economics.
- Vincenzo Quadrini, 2000.
"Entrepreneurship, Saving and Social Mobility,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
- Vincenzo Quadrini, 1997. "Entrepreneurship, saving and social mobility," Discussion Paper / Institute for Empirical Macroeconomics 116, Federal Reserve Bank of Minneapolis.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993.
"Entrepreneurial Decisions and Liquidity Constraints,"
NBER Working Papers
4526, National Bureau of Economic Research, Inc.
- Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 334-347, Summer.
- Douglas Holtz-Eakin & David Joulfaian & Harvey Rosen, 1992. "Entrepreneurial Decisions and Liquidity Constraints," Working Papers 679, Princeton University, Department of Economics, Industrial Relations Section..
- Holtz-Eakin, D. & Joulfaian, D. & Rosen, H.S., 1992. "Entrepreneurial Decisions and Liquidity Constraints," Papers 129, Princeton, Department of Economics - Financial Research Center.
- Angus Deaton, 1989.
"Saving and Liquidity Constraints,"
NBER Working Papers
3196, National Bureau of Economic Research, Inc.
- Christopher D. Carroll, 1996.
"Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis,"
NBER Working Papers
5788, National Bureau of Economic Research, Inc.
- Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
- Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
- Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000.
"Do the rich save more?,"
Finance and Economics Discussion Series
2000-52, Board of Governors of the Federal Reserve System (U.S.).
- repec:cup:cbooks:9780521465434 is not listed on IDEAS
- Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994.
"The importance of precautionary motives in explaining individual and aggregate saving,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 40(1), pages 59-125, June.
- R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1993. "The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving," NBER Working Papers 4516, National Bureau of Economic Research, Inc.
- Carol C. Bertaut & Michael Haliassos, 1996.
"Precautionary portfolio behavior from a life-cycle perspective,"
International Finance Discussion Papers
542, Board of Governors of the Federal Reserve System (U.S.).
- 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.
- Carol C. Bertaut & Michael Haliassos, 1996. "Precautionary Portfolio Behavior from a Life-Cycle Perspective," Finance 9604001, EconWPA.
- Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
- James M. Poterba, 2001. "Taxation and Portfolio Structure: Issues and Implications," NBER Working Papers 8223, National Bureau of Economic Research, Inc.
- Mervyn A. King & Jonathan I. Leape, 1987. "Asset Accumulation, Information, and the Life Cycle," NBER Working Papers 2392, National Bureau of Economic Research, Inc.
- Heng-fu Zou, 1995.
"'The spirit of capitalism' and long-run growth,"
CEMA Working Papers
94, China Economics and Management Academy, Central University of Finance and Economics.
- Eric M. Engen & William G. Gale & Cori R. Uccello, 1999. "The Adequacy of Retirement Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 65-188.
- Yew-Kwang, Ng, 1997.
"A case for Happiness, Cardinalism, and Interpersonal Comparability,"
Departmental Working Papers
_081, Chinese University of Hong Kong, Department of Economics.
- Ng, Yew-Kwang, 1997. "A Case for Happiness, Cardinalism, and Interpersonal Comparability," Economic Journal, Royal Economic Society, vol. 107(445), pages 1848-58, November.
- Bakshi, Gurdip S & Chen, Zhiwu, 1996.
"The Spirit of Capitalism and Stock-Market Prices,"
American Economic Review,
American Economic Association, vol. 86(1), pages 133-57, March.
- Auten, Gerald & Joulfaian, David, 1996. "Charitable contributions and intergenerational transfers," Journal of Public Economics, Elsevier, vol. 59(1), pages 55-68, January.
- Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 375-405, May.
- Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7826. 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: ()
If references are entirely missing, you can add them using this form.