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The Standard Portfolio Choice Problem in Germany

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  • Steffen Huck
  • Tobias Schmidt
  • Georg Weizsäcker

Abstract

We study an investment experiment conducted with a representative sample of German households. Respondents invest in a safe asset and a risky asset whose return is tied to the German stock market. Experimental investments correlate with beliefs about stock market returns and exhibit desirable external validity: they predict real-life stock market participation. But many households do not significantly react to an exogenous increase in the risky asset’s return. The data analysis and a series of additional laboratory experiments suggest that task complexity decreases the responsiveness to incentives. Modifying the safe asset’s return has a larger effect than modifying the risky asset’s return.

Suggested Citation

  • Steffen Huck & Tobias Schmidt & Georg Weizsäcker, 2015. "The Standard Portfolio Choice Problem in Germany," CESifo Working Paper Series 5441, CESifo.
    • Handle: RePEc:ces:ceswps:_5441
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    Cited by:

    1. Breunig, Christoph & Grabova, Iuliia & Haan, Peter & Weinhardt, Felix & Weizsäcker, Georg, 2021. "Long-run expectations of households," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 31, pages 1-1.
    2. Armando N. Meier, 2021. "Emotions and Risk Attitudes," SOEPpapers on Multidisciplinary Panel Data Research 1118, DIW Berlin, The German Socio-Economic Panel (SOEP).
    3. Tilman H. Drerup & Matthias Wibral & Christian Zimpelmann, 2023. "Skewness expectations and portfolio choice," Experimental Economics, Springer;Economic Science Association, vol. 26(1), pages 107-144, March.
    4. Armando N. Meier, 2019. "Emotions, Risk Attitudes, and Patience," SOEPpapers on Multidisciplinary Panel Data Research 1041, DIW Berlin, The German Socio-Economic Panel (SOEP).
    5. Christoph Breunig & Stephan Martin, 2020. "Nonclassical Measurement Error in the Outcome Variable," Papers 2009.12665, arXiv.org, revised May 2021.
    6. Johannes König & Maximilian Longmuir, 2021. "Wage Risk and Portfolio Choice: The Role of Correlated Returns," Discussion Papers of DIW Berlin 1974, DIW Berlin, German Institute for Economic Research.
    7. Breunig, Christoph, 2017. "Testing Missing At Random Using Instrumental Variables," Rationality and Competition Discussion Paper Series 59, CRC TRR 190 Rationality and Competition.
    8. Björn Bos & Moritz A. Drupp & Jasper N. Meya & Martin F. Quaas, 2023. "Financial Risk-Taking under Health Risk," CESifo Working Paper Series 10387, CESifo.
    9. Breunig, Christoph & Mammen, Enno & Simoni, Anna, 2018. "Nonparametric estimation in case of endogenous selection," Journal of Econometrics, Elsevier, vol. 202(2), pages 268-285.
    10. Urs Fischbacher & Levent Neyse & David Richter & Carsten Schröder, 2024. "Adding household surveys to the behavioral economics toolbox: insights from the SOEP innovation sample," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 10(1), pages 136-151, June.
    11. Schröder Carsten & König Johannes & Fedorets Alexandra & Goebel Jan & Grabka Markus M. & Lüthen Holger & Metzing Maria & Schikora Felicitas & Liebig Stefan, 2020. "The economic research potentials of the German Socio-Economic Panel study," German Economic Review, De Gruyter, vol. 21(3), pages 335-371, September.
    12. Merkle, Christoph, 2018. "The curious case of negative volatility," Journal of Financial Markets, Elsevier, vol. 40(C), pages 92-108.
    13. Müller, Lara Marie & Harrs, Sören & Rockenbach, Bettina, 2022. "How Narratives Impact Financial Behavior - Experimental Evidence from the COVID-19 Pandemic," VfS Annual Conference 2022 (Basel): Big Data in Economics 264089, Verein für Socialpolitik / German Economic Association.
    14. Hillenbrand, Adrian & Schmelzer, André, 2017. "Beyond information: Disclosure, distracted attention, and investor behavior," Journal of Behavioral and Experimental Finance, Elsevier, vol. 16(C), pages 14-21.
    15. Stephan Martin, 2022. "Estimation of Conditional Random Coefficient Models using Machine Learning Techniques," Papers 2201.08366, arXiv.org.
    16. Breunig, Christoph, 2017. "Testing missing at random using instrumental variables," SFB 649 Discussion Papers 2017-007, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    17. Adrian Hillenbrand & André Schmelzer, 2015. "Beyond Information: Disclosure, Distracted Attention, and Investor Behavior," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_20, Max Planck Institute for Research on Collective Goods.
    18. Gohl, Niklas & Haan, Peter & Michelsen, Claus & Weinhardt, Felix, 2024. "House price expectations," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 379-398.
    19. repec:hum:wpaper:sfb649dp2017-007 is not listed on IDEAS

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    More about this item

    Keywords

    stock market expectations; stock market participation; portfolio choice; artefactual field experiment; financial literacy; complexity;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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