NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Why Do Household Portfolio Shares Rise in Wealth?

Jessica A. Wachter, Motohiro Yogo

NBER Working Paper No. 16316
Issued in August 2010
NBER Program(s):   AP

We develop a life-cycle consumption and portfolio choice model in which households have nonhomothetic utility over two types of goods, basic and luxury. We calibrate the model to match the cross-sectional and life-cycle variation in the basic expenditure share in the Consumer Expenditure Survey. The model explains the degree to which the portfolio share in risky assets rises in wealth in the cross-section of households in the Survey of Consumer Finances. For a given household, the portfolio share can fall in response to an increase in wealth, even though the model implies decreasing relative risk aversion.

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Document Object Identifier (DOI): 10.3386/w16316

Published: Jessica A. Wachter & Motohiro Yogo, 2010. "Why Do Household Portfolio Shares Rise in Wealth?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 23(11), pages 3929-3965, November.

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