Asset Demand of U.S. Households

52 Pages Posted: 20 Oct 2022 Last revised: 27 Oct 2022

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

Date Written: October 26, 2022

Abstract

We use new monthly security-level data on portfolio holdings, flows, and returns of U.S. households to understand asset demand across multiple asset classes. Our data cover a wide range of households across the wealth distribution – including ultra-high-net-worth (UHNW) households – and holdings in many asset classes, including public and private assets. We first develop a descriptive model to summarize households’ rebalancing behavior. We find that less wealthy households rebalance from liquid risky assets to cash during market downturns, while UHNW households tend to purchase risky assets during those periods and thus stabilize market fluctuations. This pattern is particularly pronounced for U.S. equities. Across risky asset classes, three factors explain most of the variation in portfolio rebalancing and those factors target the long- term equity premium, the credit premium, and the premium on municipal bonds. Next, we develop a new framework to estimate demand curves across asset classes. While nesting traditional models as a special case, our framework allows for a muted response of asset demand to fluctuations in asset prices and easily extends to account for inertia. Our new estimator of asset demand curves exploits variation in second moments of returns and portfolio rebalancing, and can even be used when only a fraction of all holdings in a market can be observed. Our preliminary results indicate that asset demand elasticities are smaller than those implied by standard theories, vary significantly across the wealth distribution, and are negative for various groups, pointing to positive feedback trading. In sum, we think that our framework and data paint a coherent picture of U.S. households that captures, quite uniquely, their rebalancing behavior across the wealth distribution and across broad 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 (October 26, 2022). 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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