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Risky assets in Europe and the US: risk vulnerability, risk aversion and economic environment

Author

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  • Bekhtiar, Karim
  • Fessler, Pirmin
  • Lindner, Peter

Abstract

We use cross-country microdata to analyse the risk taking of households in Europe and the US. Concerning the extensive as well as the intensive margin of risky assets, European households differ substantially from US households; but also inside Europe we document substantial differences. Furthermore, average risk aversion is strongly correlated with the share of households holding risky assets across countries. We decompose the observed differences into two parts. A part explainable by household characteristics as well as differences in risk aversion and a remainder. We employ the unexplained part resulting from our microeconometric decomposition analysis together with country-level variables on the economic environment to relate observed differences in risky asset holdings to institutional ones. We find that institutional differences such as shareholder protection are strongly correlated with the unexplainable differences with regard to holdings of risky assets. JEL Classification: D12, D14, D31, G11

Suggested Citation

  • Bekhtiar, Karim & Fessler, Pirmin & Lindner, Peter, 2019. "Risky assets in Europe and the US: risk vulnerability, risk aversion and economic environment," Working Paper Series 2270, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20192270
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    References listed on IDEAS

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    2. Tang, Aidi & Yao, Wen, 2022. "The effects of financial integration during crises," Journal of International Money and Finance, Elsevier, vol. 124(C).

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    More about this item

    Keywords

    background risk; HFCS; household finance; portfolio choice; SCF;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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