Effect Of Household Credit Constraints And Risk Attitude On Portfolio

Starting with theories of asset choice,this paper studies how credit constraints and risk attitudes affect household portfolio behavior, using Ordered Probit Model of household risk attitudes,Probit and Tobit Models of household housing,Heckman Model of household stock assets,and Hierarchical Nonlinear Models of insurance. Based on the literature on household portfolio’ driving forces, three assumptions are proposed that household credit constraints affect risk attitudes primarily, so that risk attitudes affect household asset allocation, and to some extent credit constraints influence household portfolio directly. This paper uses data from China Household Finance Survey in 2011 for empirical research.Conclusions are drawn that when household are credit constrained, the degree of risk aversion will soar. The opposite is true for household asset holding. To be specific,confronted with credit constraints, household tend to hold less housing, coupled with stock and insurance. While for risk aversion household, there’s an inevitable trend of holding less housing and stock, more life insurance.