Risk preference of households in China——evidence from China Household Finance Survey
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| Title | Risk preference of households in China——evidence from China Household Finance Survey
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| Author | Hou Lei,Song Xinxi and You Yu |
| Organization | Capital University of Economics and Business |
| Email | f91yy@163.com |
| Key Words | HARA; CRRA; Habit Formation; Risk Preference |
| Abstract | The shape and magnitude of risk preference of China households, although important, have rarely been explored due to lack of detailed household data. Using panel data from China Household Finance Survey (CHFS), we investigate the hypothesis of harmonic absolute risk aversion, and recover the magnitude of relative risk aversion. We find that households' expenditure on risky asset is a linear function of total financial wealth, supporting HARA assumption. Further analysis reveals that among HARA class, CRRA is favored against difference habit model. The cyclical behavior of expected stock return in China also rejects habit model. The recovered relative risk aversion is quite heterogeneous across households, and its average magnitude is around 4.5, higher than the value postulated for advanced economies in macro and finance literature. |
| Serial Number | WP1400 |
| Time | 2019-07-30 |
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