Financial Risk Aversion and Household Asset Diversification

Nataliya Barasinska, Dorothea Schäfer and Andreas Stephan

No 117, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

Abstract: This paper explores the relationship between risk attitude and asset diversification 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: 28 p.
Date: 2008
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)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.87574.de/diw_sp0117.pdf (application/pdf)

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:diw:diwsop:diw_sp117

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