Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
959492 | Journal of Financial Economics | 2013 | 22 Pages |
Abstract
Empirical studies of household portfolios show that young households, with little financial wealth, hold underdiversified portfolios that are concentrated in a small number of assets, a fact often attributed to behavioral biases. We present a potential rational alternative: we show that investors with little financial wealth, who receive labor income, rationally limit the number of assets they invest in when faced with financial constraints such as margin requirements and restrictions on borrowing. We provide theoretical and numerical support for our results and identify the ratio of financial wealth to labor income as a useful control variable for household portfolio studies.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Hervé Roche, Stathis Tompaidis, Chunyu Yang,