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A1c Heterogeneity of Consumer Optimism and Portfolio Allocation
Key Words
Optimism, Stock market participation, Portfolio Allocation, Fractional regression, Zero-inflated regression
Short Description
This study examined the association between heterogeneous consumer optimism and portfolio allocation in the period of pre- and post- the 2008 financial crisis. Extended from the existing literature on consumer optimism, we proposed three sets of optimism which capture a more comprehensive picture of consumer optimism: (a) economic optimism, (b) health-related optimism and (c) financial risk tolerance. For empirical analyses, we used a pooled dataset of 2004-2013 Survey of Consumer Finances (SCF) and employed two advanced empirical models; (a) fractional logistic/probit regression and (b) zero-inflated beta regression. Results show that optimism was associated positively with the ratio of stocks to financial assets. In particular, optimism about future income, health and risk tolerance were found to be significant across different estimation results. Although the concept of optimism has been analyzed with two opposing views (i.e., both good and bad) related to economic choices in the existing literature, we confirm that optimism is a salient factor associated with one’s stock market participation and portfolio allocation, which helps financial practitioners and researchers understand low stock market participation puzzle in the US.
First & Corresponding Author
Kyoung Tae (KT) Kim, University of Alabama
Authors in the order to be printed
Kyoung Tae (KT) Kim, Namhoon Kim