TY  - JOUR
AU  - Brunnermeier,Markus K.
AU  - Nagel,Stefan
TI  - Do Wealth Fluctuations Generate Time-varying Risk Aversion? Micro-Evidence on Individuals' Asset Allocation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12809
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12809
L1  - http://www.nber.org/papers/w12809.pdf
N1  - Author contact info:
Markus K. Brunnermeier
Princeton University
Department of Economics
Bendheim Center for Finance
Princeton, NJ 08540
Tel: 609/258-4050
Fax: 609/258-0771
E-Mail: markus@princeton.edu

Stefan Nagel
Stanford University
Graduate School of Business
655 Knight Way
Stanford, CA  94305
Tel: 650/724-9762
Fax: 650/725-7979
E-Mail: nagel_stefan@gsb.stanford.edu
AB  - We use data from the PSID to investigate how households' portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversion with the consequence that when the level of liquid wealth changes, the proportion a household invests in risky assets should also change in the same direction. In contrast, our analysis shows that the share of liquid assets that households invest in risky assets is not affected by wealth changes. Instead, one of the major drivers of households' portfolio allocation seems to be inertia: households rebalance only very slowly following inflows and outflows or capital gains and losses.
ER  -