The importance of debt for household risky asset allocation and portfolio structure

Authors

  • Ran Tao Department of Economics, College of Business and Economics, University of Wisconsin
  • Yuan Yuan Department of Finance and Business Law, College of Business and Economics, University of Wisconsin

DOI:

https://doi.org/10.61190/fsr.v27i4.3403

Keywords:

Debt structure, Secured debt, Risky asset investment, Financial asset allocation

Abstract

When households decide on risky asset holdings, they do not make the decision in isolation from their debt structure and obligations, vice versa. We examine the joint behavior of debt and financial asset portfolio decisions, while existing empirical research on debt and asset portfolio choices has proceeded separately. In this paper, we first test the relationship between debt structure and asset allocation, then estimate the determinants of debt structure and asset allocation simultaneously. Using the 2016 Survey of Consumer Finances (SCF) data, we find robust evidence that debt structure affects households’ risky asset allocation decisions and identify, in this simultaneous decision-making process, the demographic and financial factors that can contribute to the household overall financial portfolio structure.

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Published

2018-12-30

How to Cite

Tao, R., & Yuan, Y. (2018). The importance of debt for household risky asset allocation and portfolio structure. Financial Services Review, 27(4), 325–344. https://doi.org/10.61190/fsr.v27i4.3403

Issue

Vol. 27 No. 4 (2018): Winter 2018

Section

New Original Submission

License

Copyright (c) 2018 Academy of Financial Services

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