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Risk preference of households in China——evidence from China Household Finance Survey
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TitleRisk preference of households in China——evidence from China Household Finance Survey  
AuthorHou Lei,Song Xinxi and You Yu  
OrganizationCapital University of Economics and Business 
Key WordsHARA; CRRA; Habit Formation; Risk Preference 
AbstractThe 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 NumberWP1400 
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