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

January 1, 2006

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Format: Chicago

Sònia Muñoz. Habit Formation and Persistence in Individual Asset Portfolio Holdings: The Case of Italy, (USA: International Monetary Fund, 2006) accessed December 27, 2024

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.

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

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/029
Stock No:

WPIEA2006029
ISBN:

9781451862898
ISSN:

1018-5941

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