The portfolio structure of German households: A multinomial fractional response approach with unobserved heterogeneity

Gideon Becker

No 74, 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: What determines the risk structure of financial portfolios of German households? In this paper we estimate the determinants of the share of financial wealth invested in three broad risk classes. We employ a new econometric approach - the so called fractional multinomial logit model - which allows for joint estimation of shares while accounting for their fractional nature. We extend the model to allow for unobserved heterogeneity across households via maximum simulated likelihood. We find that self-assessed appetite for risk as well as the level of wealth have strong positive effects on the riskiness of the average household's portfolio. These findings largely stay true even after we control for the potential confounding effects of unobserved differences across households via correlated random effects.

Keywords: household finance; portfolio composition; non-linear panel data model; fractional response model; unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: C15 C33 C35 C51 C58 D14 G11 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuewef:74

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