Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households

Yosef Bonaparte, George Korniotis, Alok Kumar and Melina Vosse

No 19511, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the impact of monetary policy changes on portfolio decisions of U.S. households. Contrary to the predictions of canonical portfolio choice models, interest rate increases are related to increased equity ownership and larger wealth allocations to risky assets. Inflation hedging is a likely explanation for these findings. Interest rates have a stronger impact on the equity exposure of households that experience higher inflation, especially those with greater inflation awareness and potentially stronger hedging motives. Using household portfolios at a large discount brokerage house, we provide direct evidence that investors with greater inflation sensitivity overweight stocks with high hedging potential.

Keywords: Interest rates; Asset allocation (search for similar items in EconPapers)
JEL-codes: E52 G11 (search for similar items in EconPapers)
Date: 2024-09
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