Household Portfolio Research Articles

Computational insights into optimal household portfolio decisions: a stochastic approach with heston model and finite difference scheme

Computational insights into optimal household portfolio decisions: a stochastic approach with heston model and finite difference scheme

An Analysis of the Discrepancy Between Elicited- and Revealed-Portfolio Risk Among Individual Investors: Understanding the Role of Financial Advisors

This paper describes how some investors exhibit risk discrepancies when managing household portfolios. The study extends the risk discrepancy modeling literature by documenting (a) the extent to which elicited-portfolio risk is congruent with revealed-portfolio risk and (b) the role financial advisors play in aligning investor elicited- and revealed-portfolio risk. Results show that elicited-portfolio risk is significantly higher than revealed-portfolio risk. While estimating of elicited-portfolio risk are nearly identical, revealed-portfolio risk differs between those who make their own investment decisions and those who rely on a financial advisor. This study’s findings support the notion that investors exhibit risk discrepancies when managing their portfolios.

Digital finance’s impact on household portfolio diversity: Evidence from Chinese households

Herein, we investigate the connection between digital finance and household portfolio diversity using data from the China Household Finance Survey, conducted in 2017 and 2019. Results indicate that digital finance enhances portfolio diversification, particularly among households with urban registration, higher education and higher income levels. The mechanism analysis reveals that digital finance boosts a household’s portfolio diversification by enhancing financial literacy and easing liquidity constraints. Our findings underscore the importance of promoting digital finance and financial innovation by government agencies, which can improve a household’s investment income and well-being.

Interest rate liberalization and household investment in China

In this study, we investigate the impact of interest rate liberalization on household investment behavior in China using data from the China Household Finance Survey from 2011 to 2019. We find that financial liberalization significantly increases the likelihood of households participating in financial markets and raises their holdings of riskier assets, driven by the wealth effect. This effect is more pronounced among higher-income, higher-asset, and better-educated households, without housing mortgages, as well as urban households. Our results highlight the importance of financial liberalization policies and provide new perspectives on the “limited participation puzzle” documented in emerging economies, where relatively few households actively invest in financial assets despite high expected returns. This study underscores how interest rate deregulation incentivizes household portfolio reallocation and promotes financial inclusion across socioeconomic groups.

Financial Portfolio Analysis of Single Households: Monthly Saving and Financial Assets

The purpose of this study was to analyze the financial portfolios of single-person households. For the analysis, data from the Korean Labor Panel Survey (2021) was utilized, comprising 2,905 single-person households. The major findings are as follows: First, the proportion of households with monthly savings was 32.0%, while the proportion of households holding financial assets was 72.1%. Second, regarding the composition of monthly savings, single-person households predominantly held savings accounts (93.3%), followed by insurance (4.7%), with cumulative funds at a mere 0.8%. The composition of financial assets showed that the majority were in bank deposits (78.5%), followed by risk management assets (18.0%), and investment assets (2.4%). Third, multivariate analysis results revealed that younger age, higher education level, and better financial factors were associated with a higher probability of having monthly savings. The results for financial assets were largely similar, with females showing a higher likelihood of asset possession compared to males. Fourth, the proportions of both bank savings in total savings and insurance generally had opposing effects. Fifth, age group had the greatest influence on the proportions of safety and insurance assets, followed by income group. Middle-aged households had lower proportions of safety assets but higher proportions of insurance assets compared to young households, while the opposite trend was observed for elderly households. Middle-income households had higher proportions of insurance assets compared to low-income households, whereas high-income households had higher proportions of investment assets. Lastly, cluster analysis categorized single-person households' financial portfolios into five groups: Group 1 (32.2%): "Old-Sustain" characterized by insufficient current income but economically stable retirement. Group 2 (29.4%): "Financially Active" engaging in various financial activities due to relatively high education and employment rates. Group 3 (28.0%): "Financially Inactive" classified as elderly groups with minimal financial activities. Group 4 (9.1%): "Risk Financial Structure" consisting of relatively young individuals focused on risk management assets but facing issues in financial asset management due to high-risk assets and financial loans. Group 5 (1.3%): "Stable-Insurance Oriented" with high financial assets and income concentrated in insurance for both savings and financial assets.

Internet use, household financial market participation and portfolio choice: evidence from China

PurposeThis study aims to investigate the impact of Internet use on household financial market participation and portfolio choice.Design/methodology/approachBased on the Chinese General Social Survey 2017 (CGSS2017), this study empirically explores whether Internet use affects household financial market participation in China with an Endogenous Switching Probit model.FindingsThe results show that households using the Internet are more likely to invest in financial markets. Further research shows that households with high Internet use are significantly more likely to participate in financial markets than households with low Internet use. From the perspective of household portfolio choice, Internet use has a certain role in increasing the probability of portfolio diversification. However, among households that have invested in financial markets, those with a high-frequency use of the Internet do not show an impact on portfolio diversification.Originality/valueThis study complements existing research about the impact of Internet use or not on household financial market decisions and portfolio choice, expands the knowledge on the household financial market choice from the respective of the degree of Internet use.

Does childhood adversity affect household portfolio decisions? Evidence from the Chinese Great Famine

We employ the 1959–1961 Chinese Great Famine as a quasi-natural experiment to examine the relationship between experiencing adversity in childhood and financial decisions in adulthood. Using data from the 2017 China Household Finance Survey and the intensity of excess deaths during the Great Famine, results from our preferred two-part fractional regression model suggest that, for an additional excess death per thousand people during the Famine, cohorts who were in their infancy and early childhood during the Famine are 0.2–0.3 percentage points less likely to hold risky financial assets than other cohorts. We also find that, conditional on the decision to hold risky assets, those who experienced an additional excess death per thousand people during the Famine in their middle to late childhood hold 1.1 percentage points higher share of risky assets in their household financial portfolios than those who did not experience the Famine. We explore several potential mechanisms and find that financial literacy, risk-taking preferences and locus of control are channels through which childhood adversity in the famine years affects household portfolio decisions. Our findings are robust to a series of sensitivity checks.

A theory of capital flow retrenchment

During a downturn in the global financial cycle there is a simultaneous retrenchment in gross capital flows and a fall in risky asset prices. The global financial cycle is closely related to fluctuations in risk appetite. We develop a model that can simultaneously produce a fall in gross outflows, inflows, and asset prices following an increase in global risk aversion. There is heterogeneity across investors within a country in the willingness to hold risky assets and to hold foreign assets. The fall in the asset price after a rise in global risk aversion shifts the wealth distribution towards investors that are less willing to hold foreign assets. This leads a drop in gross flows. We calibrate the within country heterogeneity in the model to match heterogeneity observed in micro data of household portfolios. The retrenchment in the calibrated model is quantitatively similar to what we observe in the macro data.

Financial Advice and Household Financial Portfolios*

We explore the demand for financial advice and the role of such advice in shaping household financial portfolios. Since taking financial advice may not be randomly allocated among households, understanding the drivers behind receiving financial advice is important before exploring the role of financial advice in shaping the composition of household portfolios. A number of specification tests are undertaken, including exploring the sensitivity of the results to selection as well matching estimation techniques. The analysis reveals that financial advice is inversely (positively) associated with the share of wealth held in real estate (bonds and stocks).

Finance, Financial Adjustments and Alternative Closures in Neo-Kaleckian Models: The Paradoxes of Thrift and Costs in the Long-Run

ABSTRACT Heterodox economists debate if Keynesian/Kaleckian or Marxian/Harrodian results apply in the long-run. This paper explores different financial mechanisms in neo-Kaleckian models with the: (1) traditional closure of an endogenous utilisation rate; and, (2) supermultiplier closure where the utilisation rate is restored to its normal degree in the long-run. Keynesian/Kaleckian results are obtained regardless of the assumptions on the utilisation rate. Attention is also given to circuitist intra-period endogenous money financing relations, and to financial adjustments that increase the elasticity of household portfolio adjustments and firm liability-side management.

Gold in household portfolios during a pandemic: Evidence from India

This paper examines how Indian households allocate their savings portfolio across gold, financial assets, and cash during the COVID-19 crisis. Our study relies on an extensive household survey in 142 districts across 21 states in India conducted during the 2020–2021 financial year. We find that the portfolio allocation of households in districts with a higher incidence of COVID-19 shifted towards gold during the pandemic compared to households in other districts. The shift towards gold is accompanied by a shift away from financial assets and other assets (primarily cash). A similar shift towards gold is observed for districts that experienced the most adverse economic impact—as measured by lower night-time lights intensity—during the pandemic. Households in districts with greater banking access and better health infrastructure show a smaller shift towards gold. A panel estimation with normal and COVID-19 period surveys confirms the baseline results. Our findings contribute to a better understanding of the role of economic crisis in shaping the financial decisions of households.

A Dynamic Analysis of the Impact of Household Portfolio Allocation Decisions on the Demand for Life Insurance

Prior research on the demand for life insurance in household portfolio holdings has not made a clear distinction between portfolio shifts resulting from active allocation decisions and those resulting from passive acceptance. Our study examines the relationship between household portfolio allocation decisions and the demand for life insurance in a dynamic setting, using panel data before and after the 2008 financial crisis. The study provides the first evidence that household decisions to invest in cash and cash equivalents, bonds, retirement assets, and pay off debts significantly affect life insurance ownership.

Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households

We study the impact of monetary policy changes on portfolio decisions of U.S. households. Contrary to the predictions of canonical portfolio choice models, interest rate increases are related to increased equity ownership and larger wealth allocations to risky assets. Inflation hedging is a likely explanation for these findings. Interest rates have a stronger impact on the equity exposure of households that experience higher inflation, especially those with greater inflation awareness and potentially stronger hedging motives. Using household portfolios at a large discount brokerage house, we provide direct evidence that investors with greater inflation sensitivity overweight stocks with high hedging potential. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.02197 .

Performance Analysis and Comprehensive Science Mapping on Financial Literacy and Financial Market Participation Using Bibliometric Technique

Purpose – The key objective of this research paper is to conduct a performance analysis to highlight the most productive and impactful research in the domain of financial literacy and financial market participation and to conduct comprehensive science mapping to visualise the data and identify the links between different fields of research.
 Research Methodology- A total of 398 documents published between the time span of 1981 to 2022 were extracted from the Scopus database. Bibliometrix, a free and open-source software, is used to perform both descriptive as well as network analysis.
 Findings- A rising trend was witnessed in research associated with financial Literacy and financial market involvement, with an annual growth rate of 16.48% in annual scientific production on the topic. Sustainability Journal was found to be the most dominant source for literature in this field of research. America, China, and India are the top countries working in this area. Among academics, the concept of financial literacy continues to garner a growing amount of interest, since 1997. As a corollary, the evolution analysis shows an upsurge in investigating how market involvement is related to a person's level of financial literacy.Keywords like portfolio choice, Investment decision, financial planning, financial well-being, household portfolio, and market volatility, risk assessment, electronic trading, financial crisis were discovered, which have not been explored much. Factor Analysis focuses on two key factors as financial literacy and stock market.
 Limitations & recommendations for future research- Data was solely extracted from Scopus database. In future, researchers can access other databases too.
 Novelty- Previous researchers have conducted bibliometrics analysis on financial literacy, financial literacy and retirement planning, financial literacy, and its influence on financial behaviour, but so far, no work has been done related to science mapping on financial literacy and financial market participation.
 Significance-This study will assist researchers in finding the prominent work on financial literacy and active participation in financial market and to uncover the emerging trends in this domain.

Precautionary Money Demand in a Cash‐in‐Advance Model

AbstractWhile numerous studies in monetary economics explore inflation, interest rates, stock returns, and money velocity, a model seamlessly linking these interactions remains elusive. One crucial omission in this literature is idiosyncratic precautionary money demand, a prominent feature in the data. This paper addresses this gap by presenting a simple model where precautionary money demand arises from heterogeneous household liquidity needs. Despite its intricate heterogeneity, the model allows straightforward aggregation, enabling analysis of its implications for household portfolios composed of cash, government bonds, and equities. The empirical analysis spans the period 1959.I–2022.I. Notably, the model captures crucial time‐series properties that models without the idiosyncratic element fail to achieve.

Portfolio Flows and Household Portfolios

Portfolio Flows and Household Portfolios

Portfolio Composition and Home Ownership Importance for the Wealth Distribution in Europe

The paper analyzes household portfolio dynamics in Europe, focusing on the period from 2010 to 2017 using data from the European Central Bank’s Household Finance and Consumption Survey (HFCS). The study examines the evolution of household portfolios after the 2008 financial crisis, with housing assets found to be one of the key drivers. On the aggregate level, the household portfolio remained stable between 2010 and 2017. Housing importance remained crucial during all the time and drove the majority of portfolio performance for households in 40–99 percentiles of the wealth distribution. With the evolution of household portfolios, age cohorts 45–54, 65 and older strengthen their positions by increasing the share of their owned assets in comparison to other age cohorts, which lost part of their shares. I conclude the paper with some stylized facts showing the relationship between home ownership, the share of portfolio in housing assets and wealth inequality between countries. The stylized facts provide evidence that household portfolios significantly concentrated in housing assets during the analyzed decade. Furthermore, the transition of households from renters to home owners contributed significantly to the changes in wealth inequality that occurred after the 2008 financial crisis.

The Rising Importance of Stock-Linked Assets in the Black–White Wealth Gap

Studies have examined the racial disparities in household characteristics, homeownership, and familial transfer as primary drivers of the Black–White wealth gap in the United States. This study assesses the importance of stock-linked assets in generating wealth inequality. As financial assets become a growing component of household portfolios, the Black–White wealth gap is increasingly associated with the racial disparity in stock-linked assets. Using data from the Survey of Consumer Finances and the Panel Study of Income Dynamics, this study shows that the contribution of stock-linked assets to the Black–White wealth gap has expanded in both absolute and relative terms, surpassing those of homeownership and business equity. Furthermore, a substantial disparity in financial wealth exists even for otherwise similar Black and White households. Although the disparity is larger among those with more economic resources, a gap remains among those with less. Lastly, our analysis shows that the combination of lower ownership levels and lower returns on financial wealth among Black households could account for a quarter of the Black–White wealth accumulation gap, net of differences in current net worth and household characteristics. Our findings suggest that considering financial assets is critical for understanding contemporary racial wealth inequality.

Household portfolios in Türkiye: Results from the household finance and consumption survey

This paper analyzes the distribution of household portfolios in Türkiye using a fresh data set, the Central Bank of the Republic of Türkiye – Household Finance and Consumption Survey. The empirical analysis concentrates on the motives behind household saving preferences and the distribution of household portfolios. Moreover, the financial situation of households in Türkiye is compared with Euro area countries. First, we find that income and household characteristics are among the leading determinants of households' portfolio choices in Türkiye. Second, we reveal that households’ portfolios are under-diversified, since they own relatively small amounts of financial wealth and hold a few types of financial assets. Furthermore, risky asset categories such as shares of publicly traded companies are rarely included among them. Third, households are more likely to invest in financial assets as their income increases, but the share of financial assets in total wealth remains subdued as household income increases, since at that point real estate wealth becomes dominant. Finally, we discover that households are more likely to be in debt in Türkiye compared to households from the Euro area. Additionally, they are more likely to accumulate non-collateralized debt and also private debt, which is owed to friends and relatives to be repaid. However, the percentage of households with mortgage debt and the share of mortgage debt in total household liabilities are smaller in Türkiye, suggesting that many households have to rely on their own funds or private loans to purchase homes. As a result, we can argue that households need to be encouraged to invest a larger share of their wealth in financial assets to raise household savings and to deepen financial markets in Türkiye.

Financial returns to household inventory management

Households tend to hold substantial amounts of non-financial assets in the form of consumer goods inventories that are unobserved by traditional measures of wealth, about $725 on average for products covered by our sample. Such holdings can eclipse total financial assets among households in the lowest income quintile. Households can obtain significant financial returns from strategically shopping and managing these inventories. In addition, they choose to maintain liquid savings—household working capital—not just for precautionary motives but also to support this inventory management. We demonstrate that households earn high marginal returns from investing in household working capital, well above 20% at low levels of inventory, though these marginal returns decline rapidly as inventory increases. Nevertheless, average returns from inventory management are high—about 50% for the typical household—and affect household portfolio returns substantially for all but the top income and asset quintiles. We provide evidence from scanner and survey data that supports this conclusion. For many households, working capital is therefore an important asset class that has been largely ignored by the household finance literature, and inventory management provides them with an alternative to investing in risky financial markets at low levels of liquid wealth.