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Portfolio Choice in the Presence of Nontradeable Income: An Experimental Analysis

Author

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  • Klos, Alexander

    (Sonderforschungsbereich 504)

  • Weber, Martin

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

This paper reports the results of experiments on portfolio choice in the presence of nontradeable income. The nontradeable income part could either be riskless or risky (background risk). In many cases, we observe behavior which is qualitatively consistent with the predictions of normative theory. However, correlations between financial and nontradeable wealth are neglected. The computation of aggregated risk profiles helps subjects to partly overcome the deviations from normative theory due to neglect of correlations.

Suggested Citation

  • Klos, Alexander & Weber, Martin, 2004. "Portfolio Choice in the Presence of Nontradeable Income: An Experimental Analysis," Sonderforschungsbereich 504 Publications 04-01, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:04-01
    Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp04-01.pdf
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    Cited by:

    1. Bergman, Nittai K. & Jenter, Dirk, 2007. "Employee sentiment and stock option compensation," Journal of Financial Economics, Elsevier, vol. 84(3), pages 667-712, June.
    2. Michael Ungeheuer & Martin Weber, 2021. "The Perception of Dependence, Investment Decisions, and Stock Prices," Journal of Finance, American Finance Association, vol. 76(2), pages 797-844, April.
    3. Alexander Klos & Elke U. Weber & Martin Weber, 2005. "Investment Decisions and Time Horizon: Risk Perception and Risk Behavior in Repeated Gambles," Management Science, INFORMS, vol. 51(12), pages 1777-1790, December.
    4. Nathaniel J. Harness & Michael M. Finke & Swarn Chatterjee, 2010. "Household Investment Asset Variation And Wealth," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 1-11.
    5. Chatterjee, Swarn & Zahirovic-Herbert, Velma, 2009. "Retirement Plan Participation in the United States: Do Public Sector Employees Save More?," MPRA Paper 13546, University Library of Munich, Germany.
    6. Doerrenberg, Philipp & Duncan, Denvil & Zeppenfeld, Christopher, 2015. "Circumstantial risk: Impact of future tax evasion and labor supply opportunities on risk exposure," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 85-100.
    7. Weber, Martin & Ungeheuer, Michael, 2016. "The Perception of Dependence and Investment Decisions," CEPR Discussion Papers 11188, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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