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Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households

Author

Listed:
  • Yosef Bonaparte

    (University of Colorado at Denver, Denver, Colorado 80204)

  • George M. Korniotis

    (Miami Herbert Business School, Coral Gables, Florida 33146)

  • Alok Kumar

    (Miami Herbert Business School, Coral Gables, Florida 33146)

  • Melina Vosse

    (University of San Diego, San Diego, California 92110)

Abstract

We study the impact of monetary policy changes on portfolio decisions of U.S. households. Contrary to the predictions of canonical portfolio choice models, interest rate increases are related to increased equity ownership and larger wealth allocations to risky assets. Inflation hedging is a likely explanation for these findings. Interest rates have a stronger impact on the equity exposure of households that experience higher inflation, especially those with greater inflation awareness and potentially stronger hedging motives. Using household portfolios at a large discount brokerage house, we provide direct evidence that investors with greater inflation sensitivity overweight stocks with high hedging potential.

Suggested Citation

  • Yosef Bonaparte & George M. Korniotis & Alok Kumar & Melina Vosse, 2024. "Inflation, Monetary Policy, and Portfolio Decisions of U.S. Households," Management Science, INFORMS, vol. 70(9), pages 6438-6460, September.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6438-6460
    DOI: 10.1287/mnsc.2023.02197
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