TY - JOUR
T1 - Do wealth fluctuations generate time-varying risk aversion? Micro-evidence on individuals' asset allocation
AU - Brunnermeier, Markus K.
AU - Nagel, Stefan
PY - 2008
Y1 - 2008
N2 - We use data from the Panel Study of Income Dynamics to investigate how households' portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversion with the consequence that when the level of liquid wealth changes, the proportion a household invests in risky assets should also change in the same direction. In contrast, our analysis shows that the share of liquid assets that households invest in risky assets is not affected by wealth changes. Instead, one of the major drivers of household portfolio allocation seems to be inertia: households rebalance only very slowly following inflows and outflows or capital gains and losses.
AB - We use data from the Panel Study of Income Dynamics to investigate how households' portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversion with the consequence that when the level of liquid wealth changes, the proportion a household invests in risky assets should also change in the same direction. In contrast, our analysis shows that the share of liquid assets that households invest in risky assets is not affected by wealth changes. Instead, one of the major drivers of household portfolio allocation seems to be inertia: households rebalance only very slowly following inflows and outflows or capital gains and losses.
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U2 - 10.1257/aer.98.3.713
DO - 10.1257/aer.98.3.713
M3 - Article
AN - SCOPUS:62949214695
SN - 0002-8282
VL - 98
SP - 713
EP - 736
JO - American Economic Review
JF - American Economic Review
IS - 3
ER -