Brunnermeier, Markus K. <br/><br/>
Do Wealth Fluctuations Generate Time-varying Risk Aversion? Micro-Evidence on Individuals' Asset Allocation / 
Markus K. Brunnermeier, Stefan Nagel. 
 - Cambridge, Mass.  National Bureau of Economic Research  2006. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w12809 .
 - Working Paper Series (National Bureau of Economic Research)  no. w12809. .
<br/><br/> December 2006. 
<br/><br/> We use data from the PSID to investigate how households' portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversion with the consequence that when the level of liquid wealth changes, the proportion a household invests in risky assets should also change in the same direction. In contrast, our analysis shows that the share of liquid assets that households invest in risky assets is not affected by wealth changes. Instead, one of the major drivers of households' portfolio allocation seems to be inertia: households rebalance only very slowly following inflows and outflows or capital gains and losses. 
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