Portfolio Allocation, Income Uncertainty and Households' Flight from Risk
Sarah Brown (),
Dan Gray (),
Mark Harris and
Christopher Spencer
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Dan Gray: Department of Economics, University of Sheffield
No 2016012, Working Papers from The University of Sheffield, Department of Economics
Abstract:
Analysing the US Panel Study of Income Dynamics, we present a new empirical method to investigate the extent to which households reduce their financial risk exposure when confronted with background risk. Our novel modelling approach - termed a deflated fractional ordered probit model - quantifies how the overall asset composition in a portfolio adjusts with background risk, and is unique in recovering for, any given risky asset class, the shares that are reallocated to a safer asset category. Background risk exerts a significant impact on household portfolios, resulting in a 'flight from risk', away from riskier to safer assets.
Keywords: Asset Allocation; Background Risk; Flight from Risk; Fractional Models (search for similar items in EconPapers)
JEL-codes: C33 C35 D14 G11 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-12
New Economics Papers: this item is included in nep-rmg
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http://www.sheffield.ac.uk/economics/research/serps/articles/2016_012 First version, December 2016 (application/pdf)
Related works:
Working Paper: Portfolio Allocation, Income Uncertainty and Households' Flight from Risk (2016) 
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2016012
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