Precautionary saving, financial risk, and portfolio choice

Deidda, M. (2013) Precautionary saving, financial risk, and portfolio choice. Review of Income and Wealth, 59(1), pp. 133-156. (doi: 10.1111/roiw.12001)

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Abstract

Relying on a direct question about the desired amount of precautionary wealth from the 2002 wave of the Italian “Survey of Household Income and Wealth,” I assess the main determinants of the precautionary motive for saving, focusing on the role played by financial risk on households' saving decisions. Households that invest mainly in safe assets do not need to protect themselves against future and unexpected financial losses. Consequently, once we control for households' sources of risk beside financial ones, the amount of precautionary savings of a household investing exclusively in safe assets should be lower compared to households who detain a non-negligible share of risky assets in their portfolio. Results show that, as expected, a strong and negative correlation exists between the desired amount of precautionary wealth and the ownership of a portfolio made exclusively of safe assets.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Deidda, Dr Manuela
Authors: Deidda, M.
College/School:College of Medical Veterinary and Life Sciences > Institute of Health and Wellbeing > Health Economics and Health Technology Assessment
Journal Name:Review of Income and Wealth
Publisher:Wiley
ISSN:0034-6586
ISSN (Online):1475-4991

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