Households Expectations and Investing in Safe and Risky Financial Assets
Year: 2020 Volume: 70 Issue: 5 Pages: 431-460
Abstract: Drawing upon data from the European Commission’s consumer survey, this paper examines how four types of household expectations affect household financial portfolio decisions in the three largest euro area countries: Germany, France, and Italy. Focus is placed on the dynamic response of the shares of safe (currency and transferable deposits) and risky (equity and investment fund shares) financial assets in relation to the total value of financial assets held by the household sector to the shocks in expectations. The results illustrate that expectations are an important determinant of household financial portfolio decisions. In general, in response to improved expectations, households increase the share of risky assets and reduce the share of safe assets. However, country and expectations-type specific differences were observed. The effects of income, prices level, deposit rate and stock price shocks on the household financial portfolio are also documented and compared and the economic policy and financial industry implications of the results are discussed.
JEL classification: D1, D84, G51, G11
Keywords: household expectations, household financial portfolio, safe assets, risky assets
DOI: https://doi.org/10.32065/CJEF.2020.05.03
RePEc: https://ideas.repec.org/a/fau/fauart/v70y2020i5p431-460.html
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