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

Yosef Bonaparte (), George M. Korniotis (), Alok Kumar () and Melina Vosse ()
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Yosef Bonaparte: University of Colorado at Denver, Denver, Colorado 80204
George M. Korniotis: Miami Herbert Business School, Coral Gables, Florida 33146
Alok Kumar: Miami Herbert Business School, Coral Gables, Florida 33146
Melina Vosse: University of San Diego, San Diego, California 92110

Management Science, 2024, vol. 70, issue 9, 6438-6460

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; market participation; asset allocation; inflation hedging; experienced inflation; household portfolios (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6438-6460

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