Centre for Finance, Credit and Macroeconomics (CFCM)

Daniel Gray (University of Sheffield)

C43 Sir Clive Granger
Thursday 7th December 2017 (14:00-15:30)

Title: Portfolio allocation, income uncertainty and households’ flight from risk (with Sarah Brown, Mark N Harris and Christopher Spencer)

Abstract:  Analysing the US Panel Study of Income Dynamics, we present a new empirical method to investigate the extent to which households reduce their financial risk exposure when confronted with background risk. Our novel modelling approach - termed a deflated fractional ordered probit model - quantifies how the overall asset composition in a portfolio adjusts with background risk, and is unique in recovering for, any given risky asset class, the shares that are reallocated to a safer asset category. Background risk exerts a significant impact on household portfolios, resulting in a 'flight from risk', away from riskier to safer assets.




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