Wealth Holdings Research Articles

Household Portfolio Risk*

We exploit the US Survey of Consumer Finances from 1998 to 2010 to study households’ portfolio risk. We compare alternative measures of ex-ante risk, based on a financial portfolio including deposits, bonds, and stocks, or a broader portfolio also including real estate, business wealth, and related debt. The measures provide different rankings of portfolio risk, but they all show a skewed distribution with many households bearing limited risk. Large wealth holdings lead to more aggressive risk positions. Moreover, risk falls at the beginning of the sample period and rises at the end, together with the business cycle.

Global Trends in Relative and Absolute Wealth Concentrations

This paper compares changes in relative and absolute wealth concentrations to establish if both processes have followed similar trajectories. The findings indicate that while the level of relative wealth concentration has increased recently, it is not extraordinarily high in an historical perspective. On the contrary, the level of absolute wealth concentration is most likely higher than that previously occurred because of the increase in the wealth holdings and population size of high net worth individuals. The sustainability of this on-going absolute concentration of wealth is questionable insofar as the resulting pressure of investor demand for safe securities poses a potential threat for financial stability.

Household Saving Behaviour and Credit Constraints in the Euro Area

We study the role of household saving behaviour, of individual motives for saving and that of perceived liquidity constraints in 15 Euro Area countries. The empirical analysis is based on the Household Finance and Consumption Survey, a new harmonized data set collecting detailed information on wealth holdings, consumption and income at the household level. Since the data is from 2010-2011, strong conclusions as regards the present are difficult to draw. This is because the crisis may have affected the data, especially in countries that were severely hit. Nevertheless we find evidence of some degree of homogeneity across countries with respect to saving preferences and the relative importance of different motives for saving. In addition, credit constraints are more heterogeneous across geographic regions and perceived to be binding for specific groups of respondents. Households living in Mediterranean countries report to be more subject to binding liquidity constraints than households living in Continental Europe. Household characteristics and institutional macroeconomic variables are significant and economically important determinants of household saving preferences and credit constraints.

Institutions and Economic Growth in Historical Perspective: Part 2

This is Part 2 of a two-part paper which surveys the historical evidence on the role of institutions in economic growth. The paper provides a critical scrutiny of a number of stylized facts widely accepted in the growth literature. It shows that private-order institutions have not historically substituted for public-order ones in enabling markets to function; that parliaments representing wealth holders have not invariably been favourable for growth; and that the Glorious Revolution of 1688 did not mark the sudden emergence of either secure property rights or economic growth. Economic history has been used to support both the centrality and the irrelevance of secure property rights to growth, but the reason for this is conceptual vagueness. Secure property rights require much more careful analysis, distinguishing between rights of ownership, use and transfer, and between generalized and particularized variants. Similar careful analysis would, we argue, clarify the growth effects of other institutions, including contract-enforcement mechanisms, guilds, communities, serfdom, and the family. Greater precision concerning institutional effects on growth can be achieved by developing sharper criteria of application for conventional institutional labels, endowing institutions with a scale of intensity or degree, and recognizing that the effects of each institution depend on its relationship with other components of the wider institutional system. Part 2 of the paper examines how institutions are situated in wider institutional systems, explores alternative approaches to explaining institutions, and applies the arguments established in earlier sections to the institution of serfdom. It concludes by drawing the implications of both parts of the paper for institutions and economic growth in historical perspective.

Private Wealth and Job Exit at Older Age: A Random Effects Model

Private wealth holdings are likely to become an increasingly important determinant in the job exit decision of elderly workers. Net wealth may correlate with worker's characteristics that also determine the exit out of a job. It is therefore important to include a rich set of observed characteristics in an empirical model for retirement in order to measure the (marginal) effect of wealth on the job exit rate. But even with a rich set of regressors the question remains whether there are time-invariant unobservable worker's characteristics that affect both net wealth and the job exit rate. We specify a simultaneous equations model for job exit transitions with multiple destinations, net wealth, and the initial labour market state. The job exit rates and the net wealth equation contain random effects. We allow for correlation between the random effects of job exit and net wealth, and the initial labour market state. As instruments for wealth, we use survey information that measures 'shocks', like shocks to the household's financial situation during the previous year. Results show an upward bias in the effect of net liquid wealth on retirement, but a small bias and a positive causal effect if net total wealth (including housing equity and mortgage debt) is used. Both measures of wealth show a significant positive effect on retirement. For an average individual with age 58 an increase in net liquid wealth by 64,000 Euro, or in net total wealth by 110,000 Euro, raises the exit rate into retirement by 1 percentage point.

Are the Elderly Responsive in Their Savings Behavior to Changes in Asset Limits for Medicaid?

In light of recent policy discussions aimed at reforming Medicaid, it is important to understand how the elderly respond to changes in the incentives of Medicaid. This article estimates the effect of a decrease in the implicit tax of holding assets brought about by the Medicare Catastrophic Coverage Act of 1988. Using the Health and Retirement Study (HRS), I find that a $1 increase in state asset protections increased median total wealth holdings by $0.20, financial wealth by $0.04, and home equity by $0.27. As expected, larger responses are found for residents of states with income limits in place prior to the law change and for states that chose the highest level of protected resource amounts.

Wealth Disparities before and after the Great Recession.

The collapse of the labor, housing, and stock markets beginning in 2007 created unprecedented challenges for American families. This study examines disparities in wealth holdings leading up to the Great Recession and during the first years of the recovery. All socioeconomic groups experienced declines in wealth following the recession, with higher wealth families experiencing larger absolute declines. In percentage terms, however, the declines were greater for less-advantaged groups as measured by minority status, education, and pre-recession income and wealth, leading to a substantial rise in wealth inequality in just a few years. Despite large changes in wealth, longitudinal analyses demonstrate little change in mobility in the ranking of particular families in the wealth distribution. Between 2007 and 2011, one fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. Multivariate longitudinal analyses document that these large relative losses were disproportionally concentrated among lower income, less educated, and minority households.

Can the Risk of Medical Expenditure Explainthe Wealth Trajectories of Elderly Singles?

In this article, I analyze the role of precautionary savings as a determinant of the wealth holdings of elderly singles. The novel aspect of the analysis is that the distribution of medical expenditure is allowed to be individual-specific, and the variance of medical expenditure is estimated for each individual using repeated observations on medical expenditure. To address the measurement error problem in medical expenditure, I use an instrumental variable estimator. I construct a simple life-cycle model and show that the coefficient of relative risk aversion can be identified from a log-linearized Euler equation for wealth, using the variation in the risk of medical expenditure. The results imply that precautionary savings can account for up to 56% of the wealth holdings of elderly singles. This means lowering the risk exposure of medical expenses at older ages could significantly alter the retirement asset draw-down rates and strategies.

Return to Being Black, Living in the Red: A Race Gap in Wealth That Goes Beyond Social Origins

In the United States, racial disparities in wealth are vast, yet their causes are only partially understood. In Being Black, Living in the Red, Conley (1999) argued that the sociodemographic traits of young blacks and their parents, particularly parental wealth, wholly explain their wealth disadvantage. Using data from the 1980-2009 waves of the Panel Study of Income Dynamics, I show that this conclusion hinges on the specific sample considered and the treatment of debtors in the sample. I further document that prior research has paid insufficient attention to the possibility of variation in the association between wealth and race at different points of the net worth distribution. Among wealth holders, blacks remain significantly disadvantaged in assets compared with otherwise similar whites. Among debtors, however, young whites hold more debt than otherwise similar blacks. The results suggest that, among young adults, debt may reflect increased access to credit, not simply the absence of assets. The asset disadvantage for black net wealth holders also indicates that research and policy attention should not be focused only on young blacks "living in the red."

Rich or Poor in Retirement? A Small Area Analysis of Australian Private Superannuation Savings in 2006 Using Spatial Microsimulation

Vidyattama Y., Cassells R., Harding A. and McNamara J. Rich or poor in retirement? A small area analysis of Australian private superannuation savings in 2006 using spatial microsimulation, Regional Studies. Substantial differences in retirement savings exist among Australians. Little is known, however, about how these patterns play out at a small area level, partly due to an absence of available data about wealth holdings at a small area level. This paper uses spatial microsimulation techniques to produce estimates of superannuation savings for Australian men and women who in 2006 were aged between forty-five and sixty years at a Statistical Local Area (SLA) level. The findings show substantial differences between Australia's small areas in terms of both superannuation ownership and median balances. Vidyattama Y., Cassells R., Harding A. and McNamara J. 退休的贫与富？利用空间微观模拟对 2006 年澳大利亚退休金储蓄进行的小型分析，区域研究。退休储蓄在澳大利亚存在实质性的地域差异。然而，上述模式如何呈现于一个较小的地域层面我们还不甚了解。本文利用空间微观模拟技术对澳大利亚2006年在地方统计层面年龄介于45-60岁间男女的退休金储蓄进行了评估。结果表明，就所有权和平均余额而言，澳大利亚小块地域之间也存在实质性差异。 空间微观模拟 空间分布 退休金储蓄 性别 Vidyattama Y., Cassells R., Harding A. et McNamara J. Être riche ou être pauvre au moment de la retraite? Une analyse à partir des données régionales sur les économies privées pour la retraite des Australiens en 2006 employant une microsimulation géographique, Regional Studies. Il existe d'importantes différences des économies pour la retraite des Australiens. Cependant, on ne sait pas beaucoup quant au déroulement de ces tendances sur le plan régional, en partie à cause des données non-disponibles sur la richesse à l'échelle régionale. Cet article emploie des techniques de microsimulation géographique afin de produire des estimations des économies pour la retraite des hommes et des femmes australiens âgés en 2006 de quarante-cinq jusqu'à soixante ans au niveau des zones statistiques locales (SLA). Les résultats laissent voir d'importantes différences interrégionales en Australie quant aux retraites complémentaires et aux soldes médians. Microsimulation géographique Distribution géographique Économies pour la retraite Genre Vidyattama Y., Cassells R., Harding A. und McNamara J. Reich oder arm im Ruhestand? Eine Analyse der privaten Altersersparnisse in Australien im Jahr 2006 auf der Ebene kleiner Gebiete mit Hilfe von räumlicher Mikrosimulation, Regional Studies. Bei den Ersparnissen für den Ruhestand bestehen unter Australiern erhebliche Unterschiede. Allerdings ist wenig darüber bekannt, wie diese Muster auf der Ebene kleiner Gebiete ausfallen, was unter anderem auf einen Mangel an verfügbaren Daten über Vermögensguthaben auf der Ebene kleiner Gebiete zurückzuführen ist. In diesem Beitrag werden mit Hilfe von räumlichen Mikrosimulationstechniken die Altersersparnisse von australischen Männern und Frauen, die im Jahr 2006 zwischen 46 und 60 Jahre alt waren, auf der Ebene eines statistischen Lokalgebiets (SLA) geschätzt. Aus den Ergebnissen geht hervor, dass zwischen den kleinen Gebieten Australiens hinsichtlich des Eigentums und medianen Guthabens von Altersersparnissen erhebliche Unterschiede vorhanden sind. Räumliche Mikrosimulation Räumliche Verteilung Altersersparnisse Geschlecht Vidyattama Y., Cassells R., Harding A. y McNamara J. ¿Rico o pobre en la jubilación? Análisis de áreas pequeñas en los ahorros de jubilación australianos en 2006 usando una microsimulación espacial, Regional Studies. Entre los australianos existen considerables diferencias en los planes de ahorro de jubilación. Sin embargo, poco se sabe sobre cómo estos patrones se desarrollan en un área pequeña, en parte debido a la ausencia de datos disponibles sobre el patrimonio en áreas pequeñas. En este artículo utilizamos técnicas espaciales de microsimulación para obtener estimaciones de los ahorros de jubilación para mujeres y hombres australianos que en 2006 tenían entre cuarenta y cinco y sesenta años en un área local estadística. Los resultados muestran grandes diferencias entre las áreas pequeñas de Australia en cuanto a la propiedad y los saldos medios de ahorros de jubilación. Microsimulación espacial Distribución espacial Ahorros en la jubilación Sexo

Marriage, Marital History, and Black – White Wealth Differentials Among Older Women

This study investigated the impact of union history and marital transitions on wealth inequality between older Black and White women (N = 7,026). Cohort data from the Health and Retirement Study show large and increasing Black – White differences in wealth. Marital and relationship histories are associated with the wealth accumulation process among older women. Women who married and stay married accumulated levels of wealth that exceeded those of other women with disrupted family lives. The marriage – wealth nexus is sensitive to a woman's position in the wealth distribution. Quantile regression results revealed that racial differences in total wealth holdings between Black and White women exist throughout the wealth distribution, whereas the relationship between current union history and wealth differentials is significant at the lower tail and middle of the distribution. Decomposition analyses highlighted the nontrivial role of racial disparities in marital histories in accounting for the racial wealth gap. As members of the baby boom generation enter their retirement years, it will be more important than ever to monitor the wealth accumulation process among older single and racial/ethnic minority women.

Geographies of wealth: real estate and personal property ownership in England and Wales, 1870–1902

This article explores the composition and geographies of individual wealth holding in England and Wales in the late nineteenth century. It draws on various forms of death duty records to determine the individual ownership of wealth including both personal property and real estate. By combining information on these different kinds of property, it is possible to explore how different strata of wealth holders accumulated specific forms of wealth at the time of their death. The article then examines how the composition of that wealth varied according to the wealth holder's location in the urban hierarchy and distance from London. It points out important geographical differences in both the scale and nature of wealth holding and raises questions about the implications of these findings.

Changing Sources of Income Among the Aged Population

This paper focuses on an explanation for the large shift over the past two decades in the composition of the income of the aged (65 ), increasing the role of earned income and reducing the importance of income from their own assets. We find that the pattern of change is consistently reported in all of the major household surveys. The increase in the importance of labor income can be attributed to delayed exit from the labor force by workers at older ages. We attribute the increase in work time to a rise in the proportion of more educated workers who choose to continue working, changes within the pension system that previously encouraged early retirement, and a decline in the availability of retiree health insurance. The increase in work time is concentrated among the highest income groups and those with the most education, suggesting that it is largely voluntary. The fall in asset income can be traced to lower interest rates and a reduced propensity for the aged to convert their wealth to annuities. It does not reflect reduced wealth at older ages. A measure of the annuity equivalent of their wealth holdings suggests that there has been no decline for aged units. We also find only a weak relationship between changes in asset income and the decision to remain in the workforce.

An alternative mechanism through which economic inequality facilitates collective action: Wealth disparities as a sign of cooperativeness

Past models treat economic inequality as an exogenous condition that can provide individuals a dominant incentive to produce collective goods unilaterally. Here we part with that tradition so as to treat economic inequality and collective action as endogenous, and to examine whether economic inequality can foster collective action even when all individuals can gain from free-riding. Using evolutionary game theory and computer simulations, we study whether cooperation can evolve when agents play multiple, one-shot prisoner’s dilemma (PD) games per generation and employ strategies that condition cooperative play on their game partners’ wealth holdings. In this game environment, we find that collective action succeeds via a strategy in which players choose to cooperate when joining a PD with an economic equal and defect when partnered with a player possessing wealth holdings unequal to their own. These results signal an alternative avenue through which economic inequality can influence the viability of collective action.

The Intersection and Accumulation of Racial and Gender Inequality: Black Women's Wealth Trajectories

Prior research has found evidence of large racial and gender disparities in wealth, with blacks possessing less wealth than whites and women having less wealth than men. An intersectionality approach suggests that the overlapping impacts of racial and gender domination are likely to combine in a multiplicative fashion that places black women in a uniquely precarious economic position. However, little is known about the wealth holdings of black women and even less is known about whether their wealth increases, decreases or remains stable as they approach retirement age, a stage of life when savings are especially important. This study utilizes seven waves of panel data from the Health and Retirement Study (HRS) and growth curve models to estimate the wealth trajectories of black women between the ages of 51 and 73. Results reveal that black women have especially low levels of net worth and net financial assets during middle and late life, suggesting high risk of economic insecurity in later life. Consistent with political economy and intersectionality perspectives, their persistently low wealth trajectories are likely the result of state policies, discrimination, residential segregation and health disparities. Ameliorative policy prescriptions are discussed.

Shocks and Asset Dynamics in Ethiopia

This article uses household survey panel data of 416 rural households to study asset dynamics in the northern highlands of Ethiopia and the response of assets to shocks. The period under examination (1996–2003) was marked by severe environmental shocks, including a series of droughts. The article empirically studies the nature of household asset paths over time, using as the point of departure the theory on precautionary savings behavior. Results indicate that the response of assets to weather shocks, the differential effect of these shocks on liquid and less liquid forms of wealth holdings, and the nature of asset dynamics are all consistent with the implications of a precautionary motive for holding wealth.

Older or Wealthier? The Impact of Age Adjustment on Wealth Inequality*

AbstractDifferences in individual wealth holdings are widely viewed as a driving force of economic inequality. However, as this finding relies on cross‐sectional data, a concern is that older is confused with wealthier. We propose a new method to adjust for age effects in cross‐sections, which eliminates wealth inequality due to age, yet preserves inequality arising from other factors. Using a new cross‐country comparable database, we examine the impact of age adjustments on wealth inequality across countries and over time. We find that the most widely used method yields a substantially different picture of age‐adjusted wealth inequality than our method.

Parental wealth and children's outcomes over the life-course in Brazil: A propensity score matching analysis

Parental wealth – as distinct from income, education and other parental socioeconomic resources – may play a large role in children's socioeconomic outcomes, particularly in developing countries, characterized by economic volatility, a weak social safety net and limited access to credit. Using a propensity score matching approach, we examine the influence of parental wealth on adult children's schooling, school quality, occupational status, consumption level, and wealth holdings in Brazil. Findings suggest a substantial effect of parental wealth on all these outcomes, with a positive effect of even modest levels of wealth. The effect of parental wealth on occupational status is largely mediated by parental investment in more and better education for children. In contrast, the effect on children's consumption and wealth is largely unmediated by labor market resources and rewards, a pattern that is more pronounced for sons than for daughters. This suggests direct parental financial assistance. Sensitivity analysis indicates that hidden bias emerging from unobserved confounders should have to be unlikely large to question inference of a causal influence of high levels of parental wealth, although the influence of low levels of wealth may be more susceptible to hidden bias.

African Americans’ pursuit of self-employment

We examine causes of black/white gaps in self-employment entry rates in the United States by recognizing that industry context heavily shapes impacts of owner resource endowments on the likelihood of successful entry. Barriers to entry, briefly stated, are high in some lines of business and low in others. We therefore proceed by explaining self-employment entry into separate subgroups of high- and low-barrier industries. Higher entry rates typifying whites, relative to African Americans, are traditionally interpreted as reflections of the former group’s greater personal wealth and human-capital resources. This consensus view, however, is simplistic: personal wealth holdings have no positive explanatory power for predicting entry into low-barrier lines of business. Our findings demonstrate, furthermore, that high educational attainment is a strong, positive predictor of entry into high-barrier fields, but not into low-barrier industries. Because industry context indeed shapes entry patterns, “one-size-fits-all” econometric models commonly used to predict entry into self-employment fall short.

Portfolio Allocation for Sovereign Wealth Funds in the Shadow of Commodity Based National Wealth

Purpose – Study the investment and risk management approach of sovereign wealth funds when national wealth including natural resources is accounted for rather than only financial asset. Methodology/Approach – Using a range of widely used asset classes, we simulate sovereign wealth fund returns when considering only financial assets but also under varying levels of national wealth holdings in oil. We optimize two-asset financial portfolios and three-asset portfolios when including oil to maximize the risk-adjusted returns. Findings – Sovereign wealth funds by failing to invest for the national wealth portfolio are overlooking a major source of volatility. To reduce the level of volatility associated with yearly national wealth returns, allocating a higher percentage of fixed assets to high-quality fixed income and low-risk equities will maximize the risk-adjusted returns of national wealth for sovereign wealth fund states. Social implications – By focusing solely on the financial assets managed by sovereign wealth funds, states are exposing themselves to significant national wealth risk. Originality/Value of the paper – This is the first work to estimate the impact on national wealth of oil-dependent states by failing to account for volatile commodity prices through the investment strategies of sovereign wealth funds.