Research On Household Portfolio Choice

With the improvement of household financing knowledge and enrichment of financial products, the problem of household portfolio choice has attracted much interest in academia. Theories of household portfolio achieved great progress, especially in America and European countries where the household financial practice is well developed. Household finance has already become a new research field which is paralleled with traditional research fields of asset pricing and corporate finance.Household financial problems have many special features that give the field its own character. Households must plan over long but finite horizons; they have important nontraded assets, notably their human capital; they hold illiquid assets, notably housing; they face constraints on their ability to borrow. Moreover, households show considerable heterogeneity in portfolio allocations. The majority of households hold neither common stock nor other risky assets. Others invest in stock almost exclusively. The extent to which risky asset holdings are diversified also varies greatly.The goal of this paper is to conduct systematic analysis of household portfolio with positive and normative methods by learning from the existed Chinese and foreign research works. The main task is to examine explanations of "Stockholding Puzzle" with different factors. Furthermore, effect on participation and holdings of risky financial assets, risky nonfinancial assets and risky asset by factors is to be examined. These factors include wealth, risky nonfinancial assets or back ground risk factors which are real estate and business equity, labor income and demographic characteristics which consist of age, education, occupation and marital status.Empirical results on American household portfolio show that there are strong positive effects of wealth, income and education on participation and holding shares of risky financial assets. Labor income also increases ownership and holding shares of risky financial assets. The life-cycle effect is hump-shaped, reflecting younger households are less likely to participate in investment of risky financial assets. It is worthwhile to notice that background risk factors "crowd out" household investment in risky nonfinancial assets. Also as expected, both ownership and share rise with married or employed-by-others households.The effect of stock investment on risky nonfmancial assets is investigated in chapter five. Results show that households will invest a lower proportion of its wealth in risky nonfmancial asset, if households hold stocks. Empirical consequences of household ownership and shares of risky assets are similar to those of research on risky financial assets.Through international comparison, the similarities and difference in household portfolio choice of various countries are summarized. Then according to macro economic and financial data and micro data of China, statistical analysis on household portfolio choice is conducted.Results show that households with higher education, higher income and prime age are more likely to invest in each asset. Real estate is the major investment item, which accounts for the largest proportion in household total assets.The main contributions of this paper include:Firstly, different factors' effects on household stock participation and share of stocks in portfolio are examined with recently published the Federal Reserve Board's Survey of Consumer Finances for 2007 by using discrete choice model and limited dependent variable model.Secondly, empirical research on household risky nonfmancial asset is conducted in this paper.Thirdly, this paper extends previous studies by considering interdependent relationship of household risky financial assets and risky nonfinancial asset.