Labor income risk and the reluctance of fouseholds to invest in risky financial assets: A panel data analysis

Gideon Becker and Thomas Dimpfl

No 72, University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics

Abstract: We investigate the determinants of a household's decision on whether to invest in risky financial assets. Financial theory suggests that with increasing labor income risk, the reluctance of households to hold stocks increases. We propose to measure income risk as the observed variation of household income over a five year period. We find that indeed higher income risk reduces the propensity to invest in stocks. However, when controlling for household heterogeneity as well as subjective measures of a household's financial situation (income satisfaction, worries about financial situation), the impact of observed labor income variation vanishes.

Keywords: household finance; risky asset market participation; labor income risk; behavioral finance; unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: D14 D81 G11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/96931/1/785503846.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:72

Access Statistics for this paper

More papers in University of Tübingen Working Papers in Business and Economics from University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().