Household Portfolios and Risk Taking Over Age and Time
University of Verona - Department of Economics; University of Amsterdam - Amsterdam School of Economics (ASE)
University of Brescia - Department of Economics
April 7, 2011
Netspar Discussion Paper No. 04/2011-037
We exploit the US Survey of Consumer Finances (SCF) from 1998 to 2007 to provide new insights on the evolution of US households’ willingness to undertake portfolio risk. Specifically, we consider four alternative measures of portfolio risk, based on two definitions of portfolio – a narrow one, including financial assets, and a broad one, also including human capital, real estate, business wealth and related debt. The four measures consistently show that risk taking peaked in 2001, many households are willing to undertake only limited risk, and that risk taking increases with wealth, income and financial sophistication. Each measure, nevertheless, provides a different ranking of household risk taking; in addition, the age profile of risk is sensitive to the definition of portfolio. However, risk taking turns out to be constant for a large part of the life cycle, and in particular during the ages 40-60, keeping all the other variables constant.
Number of Pages in PDF File: 39
Keywords: life-cycle household finance, life-cycle risk attitude, constraints, real estate, human capital
JEL Classification: D81, G11, D14working papers series
Date posted: April 23, 2011
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