Household Portfolios and Risk Taking over Age and Time

We exploit the US Survey of Consumer Finances (SCF) from 1998 to 2007 to provide new insights on the evolution of US households’ willingness to undertake portfolio risk. Specifically, we consider four alternative measures of portfolio risk, based on two definitions of portfolio - a narrow one, including financial assets, and a broad one, also including human capital, real estate, business wealth and related debt. The four measures consistently show that risk taking peaked in 2001, many households are willing to undertake only limited risk, and that risk taking increases with wealth, income and financial sophistication. Each measure, nevertheless, provides a different ranking of household risk taking; in addition, the age profile of risk is sensitive to the definition of portfolio. However, risk taking turns out to be constant for a large part of the life cycle, and in particular during the ages 40-60, keeping all the other variables constant

Financial Risk Aversion, Economic Crises and Past Risk Perception

We use a panel dataset from the Dutch Household Survey, covering annually the period 1993-2011, to analyze whether individual risk aversion changes over time with the background economic conditions. Considering six different measures of self-assessed risk aversion, which cover different aspects of risk, our preliminary results show that risk aversion is not stable over time. Its dynamics, however, depends on the type of investor. Those who made no investment in the previous year showed higher risk aversion at the end of the 90s; those who invested, in contrast, showed a steadily constant or decreasing pattern. The gap between the risk aversion of investors and noninvestors was the largest between the end of the 90s and the beginning of the 00s, when the stock market experienced exceptionally high volatility

Financial advice and household financial portfolios

We investigate the role of financial advice in shaping the composition of UK household portfolios. Our findings suggest that advice is associated with a reallocation of wealth away from real estate and towards bonds and stocks. Among the various reasons why households seek financial advice, "advice for investments" consistently has the largest effect, especially on the portfolio shares held in stocks (positively) and in real estate (negatively). With respect to the type of financial advisor, having a consultation with a stockbroker has a particularly large effect on the portfolio share in stocks. In addition, even free financial advice has a positive effect on the portfolio shares in bonds and stocks compared to not receiving advice. Finally, we explore the relationship between portfolio shares and risk, whilst accounting for the effects of financial advice. We find a positive association between the portfolio shares in bonds and stocks and the portfolio risk