Habit Formation and Persistence in Individual Asset Portfolio Holdings : The Case of Italy

Author/Editor:

Sònia Muñoz

Publication Date:

January 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper uses six waves of the Bank of Italy Survey of Households Income and Wealth to explore the dynamics of asset portfolio ownership. The household asset portfolio decision is a choice among discrete alternatives, and I model the problem in a multinomial framework. I focus on a particularly important feature of household portfolio behavior: the infrequency of portfolio allocation changes. I find evidence of strong unobserved heterogeneity through time-varying error components, which I interpret as taste persistence in both the risky and safe asset participation decisions. I estimate the model using the method of maximum smoothly simulated likelihood.

Series:

Working Paper No. 06/29

Subject:

English

Publication Date:

January 1, 2006

ISBN/ISSN:

9781451862898/1018-5941

Stock No:

WPIEA2006029

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

44

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