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A Discrete Choice Analysis of the Household Shares of Risky Assets

Author

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  • Graciela Sanromán

    (Departmento de Economía, Facultad de Ciencias Sociales, Universidad de la República and CEMFI)

Abstract

This paper studies household decisions about participation and investment in risky financial markets, using a unique panel dataset of Italian households. Micro data show that households are enormously heterogeneous in their financial decisions. Most of this heterogeneity is associated with the choice of participating in risky financial markets, and with time persistence in this decision. We postulate a model of portfolio choice with two types of financial assets, risky and riskless, and costs of participation. We use a flexible approach to estimate the conditional probability distribution function of the household shares of risky assets. We find that both household the cash-on-hand/non- financial-income ratio and non-financial-income have a positive e¤ect on the household shares of risky financial assets, mainly due their influence on the household likelihood of participating in the risky financial assets. The evidence also shows that the lagged household share of risky asset is an important determinant of the household choice. Nevertheless, we find that the age of the household’s head has not statistical relevance.

Suggested Citation

  • Graciela Sanromán, 2002. "A Discrete Choice Analysis of the Household Shares of Risky Assets," Documentos de Trabajo (working papers) 0702, Department of Economics - dECON.
  • Handle: RePEc:ude:wpaper:0702
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    File URL: http://decon.edu.uy/publica/2002/Doc0702.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    household portfolio; longitudinal data; discrete choice.;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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