Owner-Occupied Housing and the Composition of the Household Portfolio: The Case of France

This paper investigates the impact of housing demand on the composition of the optimal portfolios of homeowners in France, following the methodology developed by Flavin and Yamashita (NBER Working Paper 6389, 2002). We use historical data on housing prices and financial assets returns to estimate the mean return and covariance matrix of a set of assets including housing. We then calculate mean-variance efficient frontiers associated to various levels of the housing-to-net wealth ratio, corresponding to the average ratios observed for different age groups in the 1998 French Wealth Survey sample. Our numerical results fit the average portfolios in different age brackets quite well. Also, returns of housing and its covariance with the other assets indicate there is room in France for housing price derivatives.     

A Note on International Portfolio Diversification with Short Selling

In this paper, the diversification benefits of using stock index futures are examined. Empirical evidence shows that traditional diversification in international equity markets does not produce a risk adjusted performance superior to the US market. An explanation for this result is that restrictions on short selling prohibit the best allocation of resources when overseas stock markets are riskier and have worse returns. However, when such restrictions are eased for short selling in index futures markets, investors are enabled to both allocate their investments more efficiently and to construct a superior portfolio.     

Portfolio Diversification Effects of Downside Risk

Risk managers use portfolios to diversify away the unpricedrisk of individual securities. In this article we compare thebenefits of portfolio diversification for downside risk in casereturns are normally distributed with the case of fat-taileddistributed returns. The downside risk of a security is decomposedinto a part which is attributable to the market risk, an idiosyncraticpart, and a second independent factor. We show that the fat-tailed-baseddownside risk, measured as value-at-risk (VaR), should declinemore rapidly than the normal-based VaR. This result is confirmedempirically.     

农户分层视野下的可持续发展及金融支持研究——基于可持续生计框架的个案分析

在开放经济条件下,中国农户生计方式的转变促进了农户群体内部的分层。基于农户生计方式,利用可持续农村生计分析方法,区分了三类不同的农户。以湘南莲花村为个案,考量中国农户的异质性融资需求,构建差异化的农村金融服务体系,把握农户内部不同层次的个性金融需求,不利于金融机构提供差异化的金融服务,促进不同农户生计方式可持续发展。     

Diversification as a Public Good: Community Effects in Portfolio Choice

Within a rational general equilibrium model in which agents care only about personal consumption, we consider a setting in which, due to borrowing constraints, individuals endowed with local resources underparticipate in financial markets. As a result, investors compete for local resources through their portfolio choices. Even with complete financial markets and no aggregate risk, agents may herd into risky portfolios. This yields a Pareto‐dominated outcome as agents introduce “community” risk unrelated to fundamentals. Moreover, if some agents are behaviorally biased, or cannot completely diversify their holdings, rational agents may choose more extreme portfolios and amplify the effect.     

Preferences for Stock Characteristics As Revealed by Mutual Fund Portfolio Holdings

This investigation of the cross-section of mutual fund equity holdings for the years 1991 and 1992 shows that mutual funds have a significant preference towards stocks with high visibility and low transaction costs, and are averse to stocks with low idiosyncratic volatility. These findings are relevant to theories concerning investor recognition, a potential agency problem in mutual funds, tests of trend-following and herd behavior by mutual funds, and corporate finance.     

International Asset Pricing and Portfolio Diversification with Time-Varying Risk

We test the conditional capital asset pricing model (CAPM) for the world's eight largest equity markets using a parsimonious generalized autoregressive conditional heteroskedasticity (GARCH) parameterization. Our methodology can be applied simultaneously to many assets and, at the same time, accommodate general dynamics of the conditional moments. The evidence supports most of the pricing restrictions of the model, but some of the variation in risk-adjusted excess returns remains predictable during periods of high interest rates. Our estimates indicate that, although severe market declines are contagious, the expected gains from international diversification for a U.S. investor average 2.11 percent per year and have not significantly declined over the last two decades.     

Experimental Evidence on Portfolio Size and Diversification: Human Biases in Naïve Security Selection and Portfolio Construction

We conduct an experiment in which individuals select securities to reproduce the well‐known relationship between portfolio risk and the number of securities. The standard result occurs on average but not for most individuals, many of whom effectively de‐diversify as they add seemingly random securities. Moreover, only slightly better results are achieved using a random number generator. This finding challenges the belief that only a small number of securities are required for diversification and shows that it is applicable only to a large sample. The implications are important given that many individual investors hold very few stocks in their portfolios.     

The Impact of Portfolio Diversification on Trading Rules Profits: Some Evidence for UK Share Portfolios

This paper demonstrates how the autocorrelation structure of UK portfolio returns is linked to dynamic interrelationships among the component securities of that portfolio. Moreover, portfolio return autocorrelation is shown to be an increasing function of the number of securities in the portfolio. Since the security interrelationships seemed to be more a product of their history of non-synchronous trading than of systematic industry-related phenomena, it should not be possible to exploit the high levels of return persistence using trading rules. We show that rules designed to exploit this portfolio autocorrelation structure do not produce economic profits.     

Diversification and Performance in Banking: The Israeli Case

This paper analyzes performance and portfolio choice of banks investments across business units using methodologies developed mainly for equity investments. The backgrounds to the paper are major recent developments in the financial services industry, mainly consolidation in the banking industry that raised the issue of efficiency gains due to diversification. The paper focuses on banks in Israel as an extended case study, using the fact that Israeli banks have operated as (limited) universal banks for a long time. The results suggest that there are gains to diversification and that risk adjusted performance is mostly consistent with optimal portfolio choice. Most of the previous research in this area has been done in the US. These studies necessarily focused on hypothetical combinations of different business activities because of the legal limits on US banks. Thus this paper adds to the literature both by examining actual combinations and looking at another country.     

城镇家庭金融资产选择研究:基于结构方程模型的分析

本文从家庭参与金融市场的动机及影响因素展开研究,在梳理和总结国内外相关研究成果的基础上,选取相应的影响家庭金融资产的度量指标,构建了家庭金融资产投资的决策模型。然后基于专门的问卷调查数据,运用结构方程模型对影响家庭金融资产选择的各个变量之间的逻辑关系和内在机制进行了实证研究,并根据研究结论给出了相应的政策建议。     

户籍属性、住房拥有与家庭金融资产选择

本文采用2011年中国家庭金融调查数据(CHFS),分析了户籍属性与住房拥有对家庭金融资产选择的影响。研究表明:拥有本地户籍显著提高了家庭拥有住房率,并且对家庭参与风险资产市场的可能性和风险资产比重产生显著正向影响。这一结果在控制了家庭经济条件、人口学特征和投资风险态度等因素后仍然稳健。住房拥有对家庭风险资产市场参与、参与程度产生正效应,但是统计上不显著。进一步探讨户籍地位的城乡差异效应后发现,农业户籍地位会显著降低家庭风险资产的投资倾向。     

Portfolio Choice and Life Insurance: The CRRA Case

We solve a portfolio choice problem that includes life insurance and labor income under constant relative risk aversion (CRRA) preferences. We focus on the correlation between the dynamics of human capital and financial capital and model the utility of the family as opposed to separating consumption and bequest. We simplify the underlying Hamilton–Jacobi–Bellman equation using a similarity reduction technique that leads to an efficient numerical solution. Households for whom shocks to human capital are negatively correlated with shocks to financial capital should own more life insurance with greater equity/stock exposure. Life insurance hedges human capital and is insensitive to the family's risk aversion, consistent with practitioner guidance.     

More on Properness: The Case of Mean-Variance Preferences

This paper focuses on the situations where individuals with mean-variance preferences add independent risks to an already risky situation. Pratt and Zeckhauser (Econometrica, 55, 143–154, 1987) define a concept called proper risk aversion in the expected utility framework to describe the situation where an undesirable risk can never be made desirable by the presence of an independent undesirable risk. The assumption of mean-variance preferences allows us to study proper risk aversion in an intuitive manner. The paper presents an economic interpretation for the quasi-concavity of a utility function derived over mean and variance. The main result of the paper says that quasi-concavity plus decreasing risk aversion is equivalent to proper risk aversion.     

The Role of Alternative Methodology on the Relation Between Portfolio Size and Diversification

An important concern in portfolio management is the number of securities needed to create a well-diversified portfolio. The number of securities that constitute a welldiversified portfolio, however, varies widely among studies. It is demonstrated that past conclusions are highly sensitive to the methodology used in quantifying diversification. This finding motivates the development of alternative methods that reduce the effect of repeated replications on test results. The first approach exploits the power curves of statistical tests, whereas the second approach suggests the use of more robust statistics. Both approaches provide researchers with guidance in the design of future diversification studies.     

Household Life Cycle Protection: Life Insurance Holdings, Financial Vulnerability, and Portfolio Implications

Using the Survey of Consumer Finances, we examine the life cycle demand for different types of life insurance. Specifically, we test for the consumer's aversion to income volatility resulting from the death of a household's wage‐earner through the purchase of life insurance. We first develop a financial vulnerability index to control for the risk to the household. We then examine the life cycle demand for life insurance using several definitions of life insurance. We find, in contrast to previous research, that there is a relationship between financial vulnerability and the amount of term life or total life insurance purchased. In addition, we find older consumers use less life insurance to protect a certain level of financial vulnerability than younger consumers. Secondly, our study provides evidence that life insurance demand is jointly determined as part of a household's portfolio. Finally, we consider the impact of family members' nonmonetary contribution on the household's life cycle protection decision. Our results provide some evidence that households take into account the value of nonmonetary contribution in their insurance purchase.