Household portfolio allocation, uncertainty, and risk

Sarah Brown (), Daniel Gray, Mark Harris and Christopher Spencer

Journal of Empirical Finance, 2021, vol. 63, issue C, 96-117

Abstract: Analysing the Panel Study of Income Dynamics and the Health and Retirement Study, we investigate the extent to which US households reduce their financial risk exposure when confronted with background risk. Our novel modelling approach – termed a deflated ordered fractional model – quantifies how the overall composition of a household portfolio with three asset classes adjusts with background risk, and is unique in recovering for any given risky asset class the shares that are reallocated to each safer asset category. Background risk exerts a significant impact on household portfolios, inducing a ‘flight from risk’ from riskier to safer assets.

Keywords: Applied econometrics; Asset allocation; Background risk; Fractional models (search for similar items in EconPapers)
JEL-codes: C33 C35 D14 G11 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:63:y:2021:i:c:p:96-117

DOI: 10.1016/j.jempfin.2021.05.004

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