Wealth fluctuations and investment in risky assets : the UK micro evidence on households asset allocation

Paya, Ivan and Wang, Peng (2016) Wealth fluctuations and investment in risky assets : the UK micro evidence on households asset allocation. Journal of Empirical Finance, 38 (Part A). pp. 221-235. ISSN 0927-5398

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Abstract

This paper is the first to examine whether UK households exhibit constant or time-varying relative risk aversion within a microdata panel framework. We analyse whether portfolio allocations in risky assets change in response to fluctuations in wealth. Our set of controls for background wealth is comprehensive, and include, as a novelty in this type of studies, pension wealth. The inference about the risk profile of British households depends upon the relevant measure of background wealth. We do not find support for decreasing relative risk aversion (DRRA). Constant relative risk aversion (CRRA) prevails for the case of liquid wealth, but for the broadest definitions —those including home equity and pensions— the evidence favours increasing relative risk aversion (IRRA).

Item Type:

Journal Article

Journal or Publication Title:

Journal of Empirical Finance

Additional Information:

This is the author’s version of a work that was accepted for publication in Journal of Empirical Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Empirical Finance, 38, Part A, 2016 DOI: 10.1016/j.jempfin.2016.07.003

Uncontrolled Keywords:

/dk/atira/pure/subjectarea/asjc/2000/2003

Subjects:

?? relative risk aversionportfolio choicepanel datapension wealthfinanceeconomics and econometricsd12`e21g11 ??

Departments:

Lancaster University Management School > Economics

ID Code:

80381

Deposited By:

ep_importer_pure

Deposited On:

20 Jul 2016 12:34

Refereed?:

Yes

Published?:

Published

Last Modified:

14 Oct 2024 00:05

URI:

https://eprints.lancs.ac.uk/id/eprint/80381