IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/20192270.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2270~9c72a27c18.en.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Luc Arrondel & Laura Bartiloro & Pirmin Fessler & Peter Lindner & Thomas Y. Mathä & Cristiana Rampazzi & Frédérique Savignac & Tobias Schmidt & Martin Schürz & Philip Vermeulen, 2016. "How Do Households Allocate Their Assets? Stylized Facts from the Eurosystem Household Finance and Consumption Survey," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 129-220, June.
    2. Cristian Badarinza & John Y. Campbell & Tarun Ramadorai, 2016. "International Comparative Household Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 111-144, October.
    3. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, vol. 29(1), pages 97-112, March.
    4. Dimitris Christelis & Dimitris Georgarakos & Michael Haliassos, 2013. "Differences in Portfolios across Countries: Economic Environment versus Household Characteristics," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 220-236, March.
    5. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 1, March.
    6. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    7. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    8. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
    9. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 373-416.
    10. Barnea, Amir & Cronqvist, Henrik & Siegel, Stephan, 2010. "Nature or nurture: What determines investor behavior?," Journal of Financial Economics, Elsevier, vol. 98(3), pages 583-604, December.
    11. Jessica A. Wachter & Motohiro Yogo, 2010. "Why Do Household Portfolio Shares Rise in Wealth?," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3929-3965, November.
    12. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    13. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2003. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, edition 1, volume 1, number 2, March.
    14. Kaustia, Markku & Knüpfer, Samuli, 2012. "Peer performance and stock market entry," Journal of Financial Economics, Elsevier, vol. 104(2), pages 321-338.
    15. repec:hal:pseose:halshs-01379262 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pavel Ciaian & Andrej Cupak & Pirmin Fessler & d’Artis Kancs, 2022. "Environmental and Social Preferences and Investments in Crypto-Assets," JRC Research Reports JRC129919, Joint Research Centre.
    2. Tang, Aidi & Yao, Wen, 2022. "The effects of financial integration during crises," Journal of International Money and Finance, Elsevier, vol. 124(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    2. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    3. Kaustia, Markku & Conlin, Andrew & Luotonen, Niilo, 2023. "What drives stock market participation? The role of institutional, traditional, and behavioral factors," Journal of Banking & Finance, Elsevier, vol. 148(C).
    4. Kiichi Tokuoka, 2017. "Is stock investment contagious among siblings?," Empirical Economics, Springer, vol. 52(4), pages 1505-1528, June.
    5. Zeckhauser, Richard Jay & Tran, Ngoc-Khanh, 2011. "The Behavior of Savings and Asset Prices When Preferences and Beliefs are Heterogeneous," Scholarly Articles 5027955, Harvard Kennedy School of Government.
    6. Alessandro Bucciol & Raffaele Miniaci, 2011. "Household Portfolios and Implicit Risk Preference," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1235-1250, November.
    7. Qiang Zhang, 2004. "Accounting for Human Capital and Weak Identification in Evaluating the Esptein-Zin-Weil Non-Expected Utility Model of Asset Pricing," CIRJE F-Series CIRJE-F-289, CIRJE, Faculty of Economics, University of Tokyo.
    8. Louis Kaplow, 2005. "The Value of a Statistical Life and the Coefficient of Relative Risk Aversion," Journal of Risk and Uncertainty, Springer, vol. 31(1), pages 23-34, July.
    9. Tsvetanka Karagyozova, 2007. "Asset Pricing with Heterogeneous Agents, Incomplete Markets and Trading Constraints," Working papers 2007-46, University of Connecticut, Department of Economics, revised Sep 2008.
    10. Kazufumi Yamana, 2016. "Structural Household Finance," Discussion papers ron279, Policy Research Institute, Ministry of Finance Japan.
    11. Fernandez, Pablo & Aguirreamalloa, Javier & Liechtenstein, Heinrich, 2009. "The equity premium puzzle: High required equity premium, undervaluation and self fulfilling prophecy," IESE Research Papers D/821, IESE Business School.
    12. Ludvigson, Sydney C., 2013. "Advances in Consumption-Based Asset Pricing: Empirical Tests," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 799-906, Elsevier.
    13. Jerry Tsai & Jessica A. Wachter, 2015. "Disaster Risk and its Implications for Asset Pricing," NBER Working Papers 20926, National Bureau of Economic Research, Inc.
    14. Sha, Yezhou & Wang, Zilong & Yin, Zhichao, 2024. "House purchase restriction and stock market participation: Unveiling the role of nonpecuniary consideration," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 390-406.
    15. George M. Constantinides, 2006. "Market Organization And The Prices Of Financial Assets," Manchester School, University of Manchester, vol. 74(s1), pages 1-23, September.
    16. Andreas Oehler & Matthias Horn, 2021. "Behavioural portfolio theory revisited: lessons learned from the field," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 1743-1774, April.
    17. Andersen, Steffen & Hanspal, Tobin & Nielsen, Kasper Meisner, 2016. "Once Bitten, Twice Shy: The Role of Inertia and Personal Experiences in Risk Taking," CEPR Discussion Papers 11504, C.E.P.R. Discussion Papers.
    18. J. Bradford DeLong & Konstantin Magin, 2009. "The U.S. Equity Return Premium: Past, Present, and Future," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 193-208, Winter.
    19. Elena Márquez de la Cruz, 2005. "La elasticidad de sustitución intertemporal y el consumo duradero: un análisis para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 455-481, September.
    20. Hellström, Jörgen & Stålnacke, Oscar & Olsson, Rickard, 2022. "Individuals’ financial risk-taking and peer influence," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 1-17.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20192270. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.