Precautionary Motives and Portfolio Decisions

Theory predicts that under certain restrictions on preferences prudent consumers will allocate relatively more funds to riskless assets when there is uninsurable background risk. This paper analyzes empirically the relevance of precautionary motives for the structure of household wealth. To this end, a new and rich data source from the Netherlands is exploited. The question of primary concern is: what impact, if any, does the presence of income uncertainty have on the structure of Dutch households' portfolios? We employ various semi{parametric estimators, both for cross{sections and for panel data to assess the response of households' portfolios to uninsurable background risk. We find some, but not unanimous support for the view that portfolios become less risky as income uncertainty increases.precautionary saving;background risk;household saving;portfolio choice;application of LDV models

Household portfolio allocation in the Netherlands: Saving accounts versus stocks and bonds

This paper analyzes the portfolio structure of households in the Netherlands. It considers the allocation of financial wealth to two major asset categories, namely saving accounts on the one hand and stocks and bonds on the other hand. The latter category is considered to be more risky than the former. We analyze the impact of the overall level of wealth, the marginal tax rate, and other variables on the allocation between assets, using cross-section data drawn in 1988 that provide detailed information on the structure of household wealth, not only on ownership but also on the amounts of wealth held in the respective asset categories. The econometric specification is a trivariate tobit type model. One equation explains the total level of wealth, a second one explains individual threshold values below which no wealth is held. The third equation explains the share of wealth invested in stocks and bonds. The model is estimated using Full Information Maximum Likelihood. Limited information provided by the data (non reporting) is explicitly taken into account. Results show that wealth and the marginal tax rate are major determinants of the allocation between safe and risky assets.Portfolio Investment;Bonds;Household Economics;Savings;Stocks;microeconomics

Precautionary Motives and Portfolio Decisions

Theory predicts that under certain restrictions on preferences prudent consumers will allocate relatively more funds to riskless assets when there is uninsurable background risk. This paper analyzes empirically the relevance of precautionary motives for the structure of household wealth. To this end, a new and rich data source from the Netherlands is exploited. The question of primary concern is: what impact, if any, does the presence of income uncertainty have on the structure of Dutch households' portfolios? We employ various semi{parametric estimators, both for cross{sections and for panel data to assess the response of households' portfolios to uninsurable background risk. We find some, but not unanimous support for the view that portfolios become less risky as income uncertainty increases.

Ownership of Stocks and Mutual Funds: A Panel Data Analysis

In many industrial countries, ownership rates of risky assets have risen substantially over the past decade.This trend has potentially wide-ranging implications for the intertemporal and cross-sectional allocation of risk, and for the macro economy, establishing the need for understanding ownership dynamics at the micro level.This paper offers one of the first such analyses using representative panel survey data.We focus on the two main types of risky financial assets, mutual funds and individual stocks.We extend existing univariate dynamic binary choice models to the multivariate case and take account of interactions between the two types of assets.The models are estimated on data from the 1993-1998 waves of the Dutch CentER Savings Survey.We find that both unobserved heterogeneity and state dependence play a large role for both types of assets.Most of the positive relation between ownership of mutual funds in one period and ownership of individual stocks in the next period or vice versa, is explained by unobserved heterogeneity: if we account for correlation between the household specific effects in the two binary choice equations, we find a negative effect of lagged ownership of stocks on the ownership of mutual funds.These findings can be explained by adjustment costs that make it optimal to stick to one type of asset.stock ownership;investment trusts;panel data

Household Portfolios in the Netherlands

We describe and analyse the portfolio structure of Dutch households using micro panel data from the CentER Savings Survey, 1993-1998.The data allows for a distinction between many types of assets.Moreover, we have information on mortgage debt, consumer debt, etc.We analyse the composition of household portfolios and the level of portfolio diversification, and its relation to age, birth cohort, and education level.We compare the ownership rates and amounts held in our survey data with published statistics derived from National Accounts and administrative data.Using discrete choice models and selection models, we relate asset ownership and asset shares to background variables such as age, household composition, education, etc.Moreover, we include subjectively measured explanatory variables reflecting attitudes towards risk and the degree of information the respondent has on financial assets.We consider static as well as dynamic panel data models.Portfolio Choice;Panel Data

The Relation Between Financial and Housing Wealth of Dutch Households

We analyze households' joint investment decisions for financial wealth and homes.In our bivariate censored regression model with endogenous switching, fixed costs or transaction costs are captured by a threshold that has to be passed before the purchase.The model allows for spill-over effects of a binding threshold for one asset on the demand for the other asset.We find that tenure choice affects the level of financial wealth.Our results do not support the view that people first accumulate financial wealth before acquiring homes.This can be due to the absence of down payment constraints in the Netherlands.

The Relation Between Financial and Housing Wealth of Dutch Households

We analyze households' joint investment decisions for financial wealth and homes.In our bivariate censored regression model with endogenous switching, fixed costs or transaction costs are captured by a threshold that has to be passed before the purchase.The model allows for spill-over effects of a binding threshold for one asset on the demand for the other asset.We find that tenure choice affects the level of financial wealth.Our results do not support the view that people first accumulate financial wealth before acquiring homes.This can be due to the absence of down payment constraints in the Netherlands.housing;household economics;The Netherlands