| 来源类型 | Discussion paper
|
| 规范类型 | 论文
|
| 来源ID | DP12414
|
| DP12414 Does Household Finance Matter? Small Financial Errors with Large Social Costs |
| Harjoat Singh Bhamra
|
| 发表日期 | 2017-11-01
|
| 出版年 | 2017
|
| 语种 | 英语
|
| 摘要 | Households with familiarity biases tilt their portfolios toward a few risky assets. Consequently, household portfolios are underdiversified and excessively volatile. To understand the implications of underdiversification for social welfare, we solve in closed form a model of a stochastic, dynamic, general-equilibrium economy with a large number of heterogeneous firms and households that bias their investments toward a few familiar assets. We find that the direct mean-variance loss from holding an underdiversified portfolio that is excessively risky is equivalent to a reduction of 1.66% per annum in a household's portfolio return, consistent with the estimate in Calvet, Campbell, and Sodini(2007). However, we show that in a more general model with intertemporal consumption, underdiversified portfolios increase consumption-growth volatility, amplifying the mean-variance losses by a factor of four. Moreover, in general equilibrium where growth is endogenous, underdiversified portfolios distort also aggregate investment and growth even when familiarity biases in portfolios cancel out across households. We find that the overall social welfare loss is about six times as large as the direct mean-variance loss. Our results illustrate that financial markets are not a mere sideshow to the real economy and that financial literacy, regulation, and innovation that improve the financial decisions of households can have a significant positive impact on social welfare. |
| 主题 | Financial Economics
|
| 关键词 | Portfolio choice
Underdiversification
Familiarity bias
Growth
Social welfare
|
| URL | https://cepr.org/publications/dp12414
|
| 来源智库 | Centre for Economic Policy Research (United Kingdom)
|
| 资源类型 | 智库出版物
|
| 条目标识符 | http://119.78.100.153/handle/2XGU8XDN/541223
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推荐引用方式
GB/T 7714 |
Harjoat Singh Bhamra. DP12414 Does Household Finance Matter? Small Financial Errors with Large Social Costs. 2017.
|
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