Big Data in Household Finance

Paper Session

Friday, Jan. 6, 2017 8:00 AM – 10:00 AM

Hyatt Regency Chicago, Plaza B
Hosted By: American Economic Association
  • Chair: Stefan Nagel, University of Michigan

The Cross-Section of Household Preferences

Laurent Calvet
,
HEC Paris
John Campbell
,
Harvard University
Francisco Gomes
,
London Business School
Paolo Sodini
,
Stockholm School of Economics

Abstract

This paper estimates the cross-sectional distribution of preferences in a large administrative panel of Swedish households. We consider a life-cycle portfolio choice model, which incorporates risky financial and housing investments and risky labor income, and study middle-aged households grouped by education, industry of employment, and birth cohort. We estimate the model using the Method of Simulated Moments to match the evolution of wealth and the risky portfolio share over time. The model allows for heterogeneity in risk aversion, the elasticity of intertemporal substitution (EIS), and the rate of time preference. When all three parameters are unrestricted, they are weakly identified and we consider alternative parameter restrictions to address this problem. Our estimates of the EIS are almost always less than one and we explore how they correlate cross-sectionally with time preference and risk aversion. We also examine how preference parameters are correlated with education, birth cohort, and income risk.

Portfolio Choices, Firm Shocks and Uninsurable Wage Risk

Andreas Fagereng
,
Statistics Norway
Luigi Guiso
,
Einaudi Institute for Economics and Finance
Luigi Pistaferri
,
Stanford University

Abstract

Assessing the importance of uninsurable wage risk for individual financial choices faces two challenges. First, the identification of the marginal effect requires a measure of at least one component of risk that cannot be diversified or avoided. Moreover, measures of uninsurable wage risk must vary over time to eliminate unobserved heterogeneity. Second, evaluating the economic significance of risk requires knowledge of the size of all the wage risk actually faced. Existing estimates are problematic because measures of wage risk fail to satisfy the ”non-avoidability” requirement. This creates a downward bias which is at the root of the small estimated effect of wage risk on portfolio choices. To tackle this problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of uninsurable risk. Using this measure to instrument total variability in individual earnings, we find that the marginal effect of uninsurable wage risk is much larger than estimates that ignore endogeneity. We bound the economic impact of risk and find that its overall effect is contained, not because its marginal effect is small but because its size is small. And the size of uninsurable wage risk is small because firms provide substantial wage insurance.

The Effects of Experience on Investor Behavior: Evidence From India's IPO Lotteries

Santosh Anagol
,
University of Pennsylvania
Vimal Balasubramaniam
,
University of Oxford
Tarun Ramadorai
,
University of Oxford

Abstract

We exploit the randomized allocation of stocks in 54 Indian IPO lotteries to 1.5 million investors between 2007 and 2012 to provide new estimates of the causal effect of investment experiences on future investment behavior. We find that investors experiencing exogenous gains in IPO stocks (the treatment) are more likely to apply for future IPOs, increase trading in their portfolios, exhibit a stronger disposition effect, and tilt their portfolios towards the sector of the treatment IPO. Treatment effects vary with the characteristics of the treatment (size, variability, and salience of the gain), and are stronger for smaller and younger accounts. Treatment effects persist for larger and older accounts, suggesting that experiencing gains exerts a powerful force even on sophisticated players.

Who Sold During the Crash of 2008-9? Evidence From Tax-Return Data on Daily Sales of Stock

Jeffrey Hoopes
,
Ohio State University
Patrick Langetieg
,
Internal Revenue Service
Stefan Nagel
,
University of Michigan
Daniel Reck
,
University of Michigan
Joel Slemrod
,
University of Michigan
Bryan Stuart
,
University of Michigan

Abstract

We examine individual stock sales from 2008 to 2009 using population tax return data. Individuals sold stocks more intensely in the days following episodes of market tumult, and the increase was concentrated among older investors and those with the highest incomes. The share of sales by the top 0.1 percent of income recipients and other top income groups rose sharply following the Lehman Brothers bankruptcy and remained elevated throughout the financial crisis. Tumult-driven sales were not concentrated in any one sector, but mutual fund sales responded more strongly than stock sales. Additional analysis suggests that gross sales in tax return data are informative about unobserved net sales.
Discussant(s)
Stijn van Nieuwerburgh
,
New York University
Michaela Pagel
,
Columbia University
Rawley Heimer
,
Federal Reserve Bank of Cleveland
Terrance Odean
,
University of California-Berkeley
JEL Classifications
  • D1 - Household Behavior and Family Economics
  • G1 - General Financial Markets