Portfolio Choice of Households with Wealth Heterogeneity

This work was motivated by a variety of theoretical and empirical models on portfolio choice of households that documented the importance of precautionary motive in the face of background risks. That is: with the increase in income uncertainty the households tend to save more on aggregate postponing current expenditures. Moreover, higher uncertainty is associated with a switch from risky to safer assets. The goal of this paper is to investigate whether there is evidence of precautionary motive for Russian households and whether this factor is necessary for explanation of decisions in which form to keep savings. The random effects regression analysis on RLMS panel data (2011-2014) suggests that the significance of uncertainty measures are not robust to changes in model specification or the presence of outliers. The rest of the paper looks at composition of households portfolio. Following extremely low stock market participation, cross section analyses based on box plots for 2014 was implemented. There is evidence that the mean uncertainty is higher for security-holding households. Also, the median household from this group is characterized by higher level of education and total income and lower age of the head.