Return expectations and risk aversion heterogeneity in household portfolios

Alessandro Bucciol, Raffaele Miniaci and Sergio Pastorello

Journal of Empirical Finance, 2017, vol. 40, issue C, 201-219

Abstract: We develop a structural econometric model to elicit household-specific expectations about future financial asset returns and risk attitudes by using data on observed portfolio holdings and self-assessed willingness to bear financial risk. Our framework assumes that household portfolios are subject to short-selling constraints in stocks and bonds, and that financial investment decisions are taken conditional on real estate and business wealth. We derive an explicit solution for the model, and estimate its parameters using the US Survey of Consumer Finances from 1995 to 2013. The results show that our modified mean-variance model fits the data adequately, and that the demographic, occupational and educational characteristics of the investors are relevant in shaping risk aversion and return expectations. In contrast, wealth, income, and past market performance have limited impacts on expectations and risk aversion.

Keywords: Household finance; Risk aversion; Expectations; Mean variance analysis; Truncated and censored models (search for similar items in EconPapers)
JEL-codes: C34 D14 D81 G11 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Return Expectations and Risk Aversion Heterogeneity in Household Portfolios (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:40:y:2017:i:c:p:201-219

DOI: 10.1016/j.jempfin.2016.08.002

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