Why Do Household Portfolio Shares Rise in Wealth?

Jessica Wachter () and Motohiro Yogo

No 16316, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a life-cycle consumption and portfolio choice model in which households have nonhomothetic utility over two types of goods, basic and luxury. We calibrate the model to match the cross-sectional and life-cycle variation in the basic expenditure share in the Consumer Expenditure Survey. The model explains the degree to which the portfolio share in risky assets rises in wealth in the cross-section of households in the Survey of Consumer Finances. For a given household, the portfolio share can fall in response to an increase in wealth, even though the model implies decreasing relative risk aversion.

JEL-codes: D11 D12 G11 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-dge and nep-upt
Note: AP
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Citations: View citations in EconPapers (120)

Published as Jessica A. Wachter & Motohiro Yogo, 2010. "Why Do Household Portfolio Shares Rise in Wealth?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 23(11), pages 3929-3965, November.

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Related works:
Journal Article: Why Do Household Portfolio Shares Rise in Wealth? (2010)
Working Paper: Why do Household Portfolio Shares Rise in Wealth? (2007)
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