Return Expectations and Risk Aversion Heterogeneity in Household Portfolios

38 Pages Posted: 21 Feb 2015

See all articles by Alessandro Bucciol

Alessandro Bucciol

University of Verona - Department of Economics; Netspar

Raffaele Miniaci

University of Brescia - Department of Economics and Management

Sergio Pastorello

University of Bologna - Department of Economics

Date Written: December 24, 2014

Abstract

We develop a structural econometric model to elicit household-specific expectations about future financial asset returns and risk attitudes by using data on observed portfolio holdings and self-assessed willingness to bear financial risk. Our framework assumes that household portfolios are subject to short-selling constraints in stocks and bonds, and that financial investment decisions are taken conditional on real estate and business wealth. We derive an explicit solution for the model, and estimate its parameters using the US Survey of Consumer Finances from 1995 to 2010. The results show that our modified mean-variance model fits the data adequately, and that the demographic, occupational and educational characteristics of the investors are relevant in shaping risk aversion and return expectations. In contrast, wealth, income, and past market performance have limited impacts on expectations and risk aversion.

Keywords: Household finance, risk aversion, expectations, mean variance analysis, truncated and censored mails

JEL Classification: C34, D14, D81, G11

Suggested Citation

Bucciol, Alessandro and Miniaci, Raffaele and Pastorello, Sergio, Return Expectations and Risk Aversion Heterogeneity in Household Portfolios (December 24, 2014). Netspar Discussion Paper No. 12/2014-068, Available at SSRN: https://ssrn.com/abstract=2567351 or http://dx.doi.org/10.2139/ssrn.2567351

Alessandro Bucciol (Contact Author)

University of Verona - Department of Economics ( email )

Via Cantarane 24
Verona, 37129
Italy
+39 045.802.8278 (Phone)
+39 045.802.8529 (Fax)

HOME PAGE: http://www.sites.google.com/site/abucciol/

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Raffaele Miniaci

University of Brescia - Department of Economics and Management ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Sergio Pastorello

University of Bologna - Department of Economics ( email )

Via Saragozza, 8
Bologna, 40125
Italy
+39 051 2098144 (Phone)
+39 051 2098040 (Fax)

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