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Portfolio Choice in the Presence of Non-Tradable Income: An Experimental Analysis

Author

Listed:
  • Klos Alexander

    (University of Münster,Münster, Germany)

  • Weber Martin

    (University of Mannheim,Mannheim, Germany)

Abstract

This paper reports the results of an experiment on portfolio choice in the presence of non-tradable income. The non-tradable income part could either be riskless or risky (background risk). In many cases, we observe behavior that is qualitatively consistent with the predictions of normative theory. However, correlations between financial and non-tradable wealth are neglected. The computation of aggregated risk profiles helps subjects to partly overcome the deviations from normative theory due to neglect of correlations.

Suggested Citation

  • Klos Alexander & Weber Martin, 2006. "Portfolio Choice in the Presence of Non-Tradable Income: An Experimental Analysis," German Economic Review, De Gruyter, vol. 7(4), pages 427-448, December.
    • Handle: RePEc:bpj:germec:v:7:y:2006:i:4:p:427-448
    DOI: 10.1111/j.1468-0475.2006.00128.x
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    Cited by:

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    3. Bergman, Nittai K. & Jenter, Dirk, 2007. "Employee sentiment and stock option compensation," Journal of Financial Economics, Elsevier, vol. 84(3), pages 667-712, June.
    4. Michael Ungeheuer & Martin Weber, 2021. "The Perception of Dependence, Investment Decisions, and Stock Prices," Journal of Finance, American Finance Association, vol. 76(2), pages 797-844, April.
    5. Nathaniel J. Harness & Michael M. Finke & Swarn Chatterjee, 2010. "Household Investment Asset Variation And Wealth," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 1-11.
    6. Chatterjee, Swarn & Zahirovic-Herbert, Velma, 2009. "Retirement Plan Participation in the United States: Do Public Sector Employees Save More?," MPRA Paper 13546, University Library of Munich, Germany.
    7. Alexander Klos & Elke U. Weber & Martin Weber, 2005. "Investment Decisions and Time Horizon: Risk Perception and Risk Behavior in Repeated Gambles," Management Science, INFORMS, vol. 51(12), pages 1777-1790, December.

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    More about this item

    Keywords

    Portfolio choice; experimental economics; non-tradable income; background risk;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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