Asset Demand of U.S. Households

62 Pages Posted: 20 Oct 2022 Last revised: 26 Dec 2023

See all articles by Xavier Gabaix

Xavier Gabaix

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Federico Mainardi

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Sangmin Oh

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2023

Abstract

We use novel monthly security-level data on U.S. household portfolio holdings, flows, and returns to analyze asset demand across an extensive range of asset classes, including both public and private assets. Our dataset covers a broad range of households across the wealth distribution, notably including 439 billionaires. This ensures representation of ultra-high-net-worth (UHNW) households that are typically not well covered in survey data. With these data, we study the portfolio rebalancing behavior of households and ask whether (and, if so, which) households play an important stabilizing role in financial markets. Our findings reveal a stark contrast: less affluent households sell U.S. equities amid market downturns, while UHNW households buy and contribute to stabilizing markets. This behavior is more pronounced among households who rebalance their portfolios more frequently. However, the sensitivity of flows to returns is generally quite small and as the trades of different wealth groups partly offset each other, the aggregate household sector plays a limited role to absorb financial fluctuations. To understand the contrasting trading behavior across households, we show that a household’s flows to U.S. equities are negatively correlated with its “active returns” (the difference between an investor’s return and the market return). However, the flows to U.S. equities of less affluent households are also positively correlated with broad market returns – perhaps due to shifts in risk aversion, sentiment, or perceived macroeconomic risk – leading this group of households to act pro-cyclically. Across all asset classes, three factors with intuitive economic interpretations explain 81% of all variation in portfolio rebalancing. Those factors bet on the long-term equity premium, the credit premium, and the premium on municipal bonds. In sum, our framework paints a quantitative picture of U.S. households’ assets and rebalancing marked by a great deal of insensitivity and inertia throughout the distribution, even for UHNW households. These new facts are useful for the calibration of macro-finance models with heterogeneous households and multiple risky asset classes.

Suggested Citation

Gabaix, Xavier and Koijen, Ralph S. J. and Mainardi, Federico and Oh, Sangmin and Yogo, Motohiro, Asset Demand of U.S. Households (December 21, 2023). Available at SSRN: https://ssrn.com/abstract=4251972 or http://dx.doi.org/10.2139/ssrn.4251972

Xavier Gabaix

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Federico Mainardi

University of Chicago - Booth School of Business ( email )

5807 S Woodlawn Ave
Chicago, IL 60637
United States
8728182099 (Phone)

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Sangmin Oh

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Motohiro Yogo

Princeton University - Department of Economics ( email )

Julis Romo Rabinowitz Building
Princeton, NJ 08544
United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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