Financial Risk Aversion and Household Asset Diversification

Nataliya Barasinska (), Dorothea Schäfer and Andreas Stephan
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Nataliya Barasinska: DIW Berlin

No 137, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper explores the relationship between risk attitude and asset diversifcation in household portfolios. We first examine the impact of manifested risk aversion on the total number of distinct assets held in a portfolio (naive diversification). The second part of the paper focuses on a more sophisticated strategy of diversification and asks whether financial theory is compatible with observed diversification patterns. Based on the German Socioeconomic Panel which provides unique measures of individual propensity for taking risk, the results of the regression analysis show that, along with some socioeconomic characteristics, the propensity for taking investment risk is an important predictor of a household's diversification strategy. However, some of our findings are strongly at odds with what the concept of mean-variance utility suggests.

Keywords: household finances; diversification; financial portfolio (search for similar items in EconPapers)
JEL-codes: D14 G11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-09-09
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Financial Risk Aversion and Household Asset Diversification (2009)
Working Paper: Financial Risk Aversion and Household Asset Diversification (2008)
Working Paper: Financial Risk Aversion and Household Asset Diversification (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0137

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