Habit Formation and Persistence in Individual Asset Portfolio Holdings: The Case of Italy
January 1, 2006
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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.
Subject: Asset allocation, Asset and liability management, Bonds, Econometric analysis, Financial institutions, Financial markets, Logit models, Stock markets, Stocks
Keywords: Asset allocation, Bonds, covariance matrix, dependent variable, financial asset allocation decision, Habits, Incomplete Markets, Logit models, Multiperiod Multinomial Probit, Portfolio Allocations, portfolio decision, risky assets, safe assets, simulation estimation method, Stock markets, Stockholding Puzzle, Stocks, WP
Pages:
44
Volume:
2006
DOI:
Issue:
029
Series:
Working Paper No. 2006/029
Stock No:
WPIEA2006029
ISBN:
9781451862898
ISSN:
1018-5941
