Precautionary Saving,Financial Risk,and Portfolio Choice

Relying on a direct question about the desired amount of precautionary wealth from the 2002 wave of the Italian “Survey of Household Income and Wealth,” I assess the main determinants of the precautionary motive for saving, focusing on the role played by financial risk on households' saving decisions. Households that invest mainly in safe assets do not need to protect themselves against future and unexpected financial losses. Consequently, once we control for households' sources of risk beside financial ones, the amount of precautionary savings of a household investing exclusively in safe assets should be lower compared to households who detain a non‐negligible share of risky assets in their portfolio. Results show that, as expected, a strong and negative correlation exists between the desired amount of precautionary wealth and the ownership of a portfolio made exclusively of safe assets.     

Stochastic optimization applied to self-financing portfolio: does bequest matter?

The article studies stochastic optimization of an intertemporal consumption model to allocate financial assets between risky and risk-free assets. We use a stochastic optimization technique, in which utility is maximized subject to a self-financing portfolio constraint. The papers in literature have estimated the errors of Euler equations using data from financial markets. It has been shown that it is sufficient to test the first order Euler equation implied by the model. However, they all assume a constant consumption–wealth ratio that constrains the boundary conditions, hence influencing the coefficient of the risk premium. The main contribution of our article is that we drop the assumption of a constant consumption–wealth ratio. We have an analytical solution using a utility maximization model with a stochastic self-financing portfolio. We introduce a terminal condition of wealth with and without bequests. We also simulate the stochastic optimization with a self-financing portfolio, distinguishing risk neutral investors (γ-low) from high risk averse investors (γ-high). We show that the model with bequest has a higher level of wealth and a smoother decline of consumption over time than the model with no bequest at the end of the period. The model with no bequest has the same level of consumption and a sharp fall at the end of the period. Risk averse agents with high return assets have a higher amount of wealth than risk-neutral agents with lower return assets.     

Portfolio Composition Choice: A Behavioral Approach

This experimental study investigates portfolio composition choice for different types of financial assets and different levels of wealth. For a group of financially sophisticated executive MBA students with work experience in capital markets, the findings of this study indicate that the proportion of wealth invested in risky assets increases with wealth for all portfolio compositions examined, and increases with the degree of asset risk. This proportion is found to be as much as three times higher for common stocks than for options: For stock portfolios, it increases from 33% to 44% over the five wealth levels examined, and for options it increases from 11% to 17%. These results may imply a decreasing rel w proportions of their wealth in risky assets possess the following characteristics: they do not invest in options in real life; they sometimes buy lottery tickets; they assign a higher risk level to options than to common stocks; they are female; and they are employed.     

投资理性、居民金融资产选择与储蓄大搬家

本文通过一个加入交易成本的两期资产选择模型,对目前城镇居民储蓄迅速搬家股市而农村居民几乎不持有风险资产这两种并存现象的巨大反差提供了一个较为合理的解释.研究发现当持有风险资产存在成本时,财富水平的高低和交易成本的大小是居民决定是否持有一定数量风险资产的重要因素.二元经济结构下的城乡收入差距显著,财富分布极不均等,交易成本的不对称是阻碍农村居民投资风险资产的主要原因.在众多影响风险资产持有水平的因素中,高风险升水所带来的财富效应主导了其它因素的影响.     

Life‐cycle asset accumulation and allocation in Canada

Abstract.  This paper documents the life‐cycle patterns of household portfolios in Canada, and investigates several hypotheses about asset accumulation and allocation. Inferences are drawn from the 1999 Survey of Financial Security, with some comparisons to earlier wealth surveys from 1977 and 1984. I find cross‐sectional evidence for asset decumulation at older ages when annuitized assets like pension wealth are included in the analysis. I also find that the portfolio share of financial assets increases sharply with age, while indicators of risk tolerance appear to decrease. This is consistent with families' desiring more liquid and less risky assets as they age. JEL classification: D31, E21, G11     

Does religious faith affect household financial market participation? Evidence from China

Based on the 2013 China Household Finance Survey data, this paper investigates the impact of religious faith on household financial market participation and portfolio choice. The results show that religious faith can significantly promote household financial market participation. Besides, religious faith can increase the proportion of risky assets held by households, including equities. We also find that the need for social interaction and human capital accumulation can significantly induce religious residents to participate in financial markets and hold risky assets. Overall, our results reveal how faith affects household finance activities in China.     

Consumption and Wealth in Australia

This paper examines the relationship between consumption and wealth in Australia. We find a steady-state relationship between non-durables consumption, labour income and aggregate household wealth for the period 1988–1999. We also find that changes in both non-financial and financial assets have significant but different short-run and long-run effects in dynamic consumption models. Finally, we place our results within the broader empirical literature and examine whether they are consistent with standard theories of consumption.     

国债融资能否影响居民消费需求——基于城镇居民经验数据的实证分析

“传统的政府债务观点”与“李嘉图等价观点”对国债融资的消费效应存在很大的争议.本文基于生命周期假说,将国债幻觉引入基本消费函数,区分私人部门持有的国债资产和其他资产两部分,运用中国宏观经济数据实证分析了国债对城镇居民消费的影响.实证结果表明:国债对城镇居民具有一定的“财富效应”;人均可支配收入仍是居民消费的基础;其他金融资产对城镇居民具有“负”的财富效应,而住房资产对城镇居民而言具有“正”的财富效应.     

Can Risk‐Averse Households Make Risky Investments? The Role of Trust in Others

In this paper, using data from the Survey on Health, Ageing and Retirement in Europe (SHARE, 2006 and 2013 waves), we illustrate the link between individuals’ attitudes to financial risk combined with their willingness to trust others, and their investments in risky assets. Individuals who display either risk tolerance alone or – to a lesser extent – risk aversion and trust more frequently decide to buy risky assets. The comparison between Scandinavian and Mediterranean countries indicates that trust plays qualitatively different roles depending on the prevailing combination of risk attitude and trust in the area being studied.     

Capital flight from sub‐Saharan Africa: linkages with external borrowing and policy options

Even as African countries became increasingly indebted, they experienced large‐scale capital flight. Some of this was legitimately acquired capital fleeing economic and political uncertainties; some was illegitimately acquired wealth spirited to safer havens abroad. This paper presents new estimates of the magnitude and timing of capital flight from 33 sub‐Saharan African countries from 1970 to 2004. We then analyze its determinants, including linkages to external borrowing. Our results confirm that sub‐Saharan Africa is a net creditor to the rest of the world, in that the subcontinent’s private external assets exceed its public external liabilities: total capital flight amounted to $443 billion (in 2004 dollars), compared to the external debt of $195 billion. Econometric analysis indicates that for every dollar in external loans to Africa in this period, roughly 60 cents flowed back out as capital flight in the same year, a finding that suggests the existence of widespread debt‐fueled capital flight. The results also show a debt‐overhang effect, as increases in the debt stock spur additional capital flight in later years. In addition to policies for recovery of looted wealth and repatriation of externally held assets, we discuss the need for policies to differentiate between legitimate and odious debts, both to ease current burdens on African countries and to improve international financial governance in the future.     

The trajectory of wealth in retirement

In this paper, we develop a measure of household resources that converts total financial and non-financial assets, plus annuity-like assets (mainly, Social Security and defined-benefit pensions) into an expected annual amount of wealth per person in retirement. We use this measure, which we call “annualized comprehensive wealth,” to investigate spend-down behavior among a panel of older households in the Health and Retirement Study (HRS) from 1998 to 2006. Our analysis indicates that for most retired households, comprehensive wealth balances decline much more slowly than their remaining life expectancies, so that the predominate trend is for real annualized wealth to rise significantly with age over the course of retirement. Comparing the estimated age profiles for annualized wealth with profiles simulated from several different life-cycle models, we find that a model that takes into account uncertain longevity, random medical expenses, and intended bequests lines up best with the broad patterns of rising annualized wealth in the HRS.     

THE DISTRIBUTION OF BETAS IN PRESENCE OF NONTRADED ASSETS

This study considers a capital assets pricing model (CAPM) in an incomplete financial market wherein not all risky assets are traded and the risk from non‐traded assets is not orthogonal to that of the existing or traded assets. The model shows the extent of the divergence of the CAPM betas (true betas) from the traditional CAPM betas (perceived betas) in market equilibrium conditions in an incomplete market. Specifically, it implies that the more incomplete a financial market is, the wider is the discrepancy between the true and perceived betas, and the distribution of the perceived betas tends to centre more around 1 in an incomplete market than that of true betas. Empirical evidence in various settings support these results.     

Racial/Ethnic disparities in high return investment ownership: a Heckman selection model

This study investigates racial/ethnic differences in high return investment ownership in the U.S. Households with low levels of financial assets might not be able to meaningfully make investment choices, so a Heckman two-stage selection model was used to separate the minimum asset level status from the allocation decision, specifically in whether households owned at least one high return investment. We found that households with White respondents were more likely than households with Black and Hispanic respondents to have adequate financial assets for investment. Conditional on having adequate financial assets, and controlling for household characteristics and financial literacy, White households were more likely to own high return investments than Black, Hispanic and Asian/other households. Policies to nudge households to invest some wealth in high return investment assets would benefit minority households.     

WEALTH,ASSET PORTFOLIO,MONEY DEMAND AND POLICY RULE

I look at the linkages between monetary policy and asset wealth using quarterly data for the USA. I show that a positive interest rate shock leads to a fall in aggregate wealth and an important change in portfolio composition: housing wealth gradually decreases, but the effects are very persistent; and financial wealth quickly shrinks, but the impact is short‐lived. I also find that the money market can be characterized as follows: (i) the money demand has a large interest elasticity and a small output elasticity; and (ii) the estimated monetary policy reaction function highlights the special focus given by the central bank to developments in monetary aggregates. These features call for an approach whereby monetary authorities put more emphasis on tracking wealth developments, in particular, given the asset portfolio rebalancing between money holdings and financial and/or housing assets.     

Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy

We estimate marginal propensities to consume from wealth shocks. We exploit large asset-price shocks in 2007–2008 and household-level panel data to implement instrumental variables. A fall of one euro in risky financial wealth resulted in cuts to annual total (non-durable) consumption of 8.5–9 (5.5–5.7) cents, with small effects on food spending. Effects seem stronger for lower-wealth or indebted households, but significant responses from wealthier households and those without mortgages are important for our baseline results. Counterfactuals indicate financial-wealth effects were relatively important for consumption falls in Italy in 2007–2008. The estimated effects are consistent with a simulated life-cycle model capturing the wealth shock.     

Capital in the Twenty-First Century: Reinterpreting the fundamental contradiction of capitalism

At a theoretical level this article discusses Piketty’s hypothesis that the distribution of income and wealth tends to become more concentrated over time when the rate of return on capital is greater than the growth rate of real output. We develop a post Keynesian model of growth and distribution showing that once capital is differentiated from wealth, the increase in income and wealth concentration actually occurs when the rate of valorization of financial and real estate assets is greater than the growth rate of real output, and that this situation may be triggered by financial liberalization.     

金融资产与实物资产对城镇居民消费影响的差异性研究

本文在相关资料基础上,对我国城镇居民持有金融资产与实物资产进行了重新核算,并采用ARDL-UECM模型计量分析了长短期内金融资产、实物资产对消费影响的差异性。结果表明:金融资产长期内对消费支出存在较弱的抑制作用,短期内存在较弱的促进作用;而实物资产长期内对消费存在有限的促进作用,短期内对消费存在较强的促进作用。产生这种差异的原因主要是:超额比重预防性储蓄导致金融资产对居民消费产生长期扭曲,以及过高自有住房率在房价攀升时只能提高短期边际消费倾向,长期则有限。现阶段只有降低超额比重预防性储蓄及抑制过高的房价才能进一步提高城镇居民的资产财富效应。     

ESTIMATES OF HOUSEHOLD WEALTH INEQUALITY IN THE U.S., 1962–1983

The study has two major objectives. The first is to determine time trends in household wealth inequality in the U.S. over the 1962–83 period. Four concepts of wealth are analyzed: (i) total household wealth, defined as total household assets less liabilities; (ii) fungible wealth, defined as total household wealth less consumer durables and household inventories; (iii) financial wealth, defined as fungible wealth less equity in owner-occupied housing; and (iv) capital wealth, defined as financial wealth less currency, checking accounts, and time deposits. Relying on a variety of data sources, I find that wealth inequality remained relatively constant from about 1962 to 1973, fell sharply from about 1973 to about 1979, and then rose sharply between 1979 and 1983. Concentration in 1983 was greater than that in 1962 for financial and capital wealth but of similar magnitude for total and fungible wealth. The second, methodological in nature, is to analyze the effect on measured inequality of the alignment of raw survey data to national balance sheet totals. I find that the alignment process can significantly affect point estimates of household wealth distribution but does not generally affect the direction of inequality trends.     

Utility Functions whose Parameters depend on Initial Wealth

Conventional one-period utility functions in Economics assume that initial wealth only enters preferences through the definition of final wealth. Consequently, those utility functions most utilized (i.e., exponential and quadratic) have implausible risk characteristics. The authors characterize a new class of utility function whose risk parameters depend upon initial wealth and obtain several desirable results. In particular, investors with quadratic and exponential utility functions can have decreasing risk aversion, and risky assets in a quadratic utility multi-asset environment do not have to be inferior as implied by the traditional framework.     

TRENDS IN AGGREGATE HOUSEHOLD WEALTH IN THE US., 1900–83

New estimates of aggregate household wealth for the U S. covering selected years in the period from 1900 to 1983 are presented. I find that marketable wealth per capita grew at 1.46 percent per year in real terms over the 1900–83 period, while real wealth per household grew at 0.81 percent per year. However, the growth rate was not uniform over the period, with the rates high during the 1900–29 and the 1949–69 periods, and slow during the other years. Moreover, real per capita wealth actually increased more slowly than real per capita disposable income and real per capita GNP over the century. I also find dramatic changes in the composition of household wealth over the century. In particular, both tangibles and fixed claim assets increased relative to total assets over the period from 1900 to 1983, while equities fell from about half to a quarter. Owner-occupied housing increased only moderately as a proportion of assets, from 17 percent in 1900 to 20 percent in 1983. Unincorporated business equity fell from over a third of total assets to 12 percent. Among financial assets, the biggest relative growth occurred in deposits in financial institutions, which grew from 8 percent in 1900 to 22 percent in 1983. Corporate stock had the most volatile behavior in the household portfolio, growing from 13 percent of total assets in 1900 to 27 percent in 1929, falling to 10 percent in 1949, rising to 22 percent in 1965, and then falling to 11 percent by 1983. Debt as a proportion of total assets rose from 5 percent in 1900 to 16 percent in 1983. Finally, both pension reserves and social security wealth increased relative to marketable assets from virtually zero in 1900 to 12 and 48 percent, respectively.