The Portfolio Structure of German Households: A Multinomial Fractional Response Approach with unobserved Heterogeneity

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Dokumentart: Aufsatz
Date: 2014-09-01
Source: University of Tübingen Working Papers in Economics and Finance ; No. 74
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Panelanalyse
Other Keywords: unbeobachtete Heterogenität
household finance
portfolio composition
non-linear panel data model
fractional response model
unobserved heterogeneity
License: Publishing license excluding print on demand
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What determines the risk structure of financial portfolios of German households? In this paper we estimate the determinants of the share of financial wealth invested in three broad risk classes. We employ a new econometric approach - the so called fractional multinomial logit model - which allows for joint estimation of shares while accounting for their fractional nature. We extend the model to allow for unobserved heterogeneity across households via maximum simulated likelihood. We find that self-assessed appetite for risk as well as the level of wealth have strong positive effects on the riskiness of the average household’s portfolio. These findings largely stay true even after we control for the potential confounding effects of unobserved differences across households via correlated random effects.

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