Portfolio choice when relative income matters

Sangkyun Park

The Journal of Socio-Economics, 2009, vol. 38, issue 3, pages 530-533

Abstract: This paper derives conditions under which concerns about relative income produce rational herding--the shift of individuals' portfolios into the same direction as others'. To endure the generality of results, the model makes parsimonious behavioral assumptions and no assumption about the functional form of utility. The two most critical conditions are substitutability between one's own income and relative income and diminishing marginal utility of relative income. The keeping-up-with-the-Joneses (KUJ) motive unambiguously contributes to rational herding. When relative income is viewed as a measure of status, however, the KUJ motive is neither a necessary nor a sufficient condition.

Keywords: Relative; income; Asset; bubbles; Consumption; externalities; Keeping-up-with-the-Joneses; Herding; Portfolio; choice (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6W5H ... d1e71cd491e9ad3e3bff
Full text for ScienceDirect subscribers only

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: http://EconPapers.repec.org/RePEc:eee:soceco:v:38:y:2009:i:3:p:530-533

Access Statistics for this article

The Journal of Socio-Economics is edited by M. Altman

More articles in The Journal of Socio-Economics from Elsevier
Series data maintained by Heidi Boesdal ().