Household Investment Asset Variation and Wealth
The International Journal of Business and Finance Research, Vol. 4, No. 2, pp. 1-11, 2010
11 Pages Posted: 9 Sep 2010
Date Written: 2010
Frequent shifting of household portfolio composition may erode wealth due to poor market timing and transaction costs. If household preferences are stable, the optimal wealth maximizing strategy is periodically rebalancing to maintain a relatively constant ratio or investment assets to wealth from year to year. However, some households may fail to rebalance, or may change their preference for broad asset classes because of inexperience or behavioral biases. This research tests the impact of variation in the capital accumulation ratio (CAR), a commonly used ratio of investment assets to net worth, on changes in wealth using quantile regression. Using quantile regression, we find that having a high standard deviation of CAR results in the greatest losses among those with the lowest change in wealth between 1994 and 2004.
Keywords: Investment variation, portfolio choice, capital accumulation
JEL Classification: D14, G11, H31
Suggested Citation: Suggested Citation