This is an empirical study of the determinants of stock holdings using data from the U.S. Survey of Consumer Finances from 1992 to 2001. There is a great heterogeneity in the way households form their portfolios. Stock ownership is positively correlated with various measures of wealth, age, retirement savings, and having sought financial advice. It is negatively correlated with holdings of alternative risky investments, such as investments in private businesses, and with the willingness to undertake non-financial investments in the future. While we can predict reasonably well who holds stocks, we have less predictive power about the share of stocks owned by those who hold positive amounts. JEL: G11

Personal projects, such as a private business or the purchase of a home, inf luence individuals' portfolio choice. We conduct a theoretical analysis of this inf luence when financial assets are required to provide liquidity to personal projects. Due to this liquidity consideration, individuals behave in a more risk-averse fashion when there is a large penalty for discontinuing or underinvesting in the final stages of the projects. In addition, using data from the 1995 Survey of Consumer Finances, we find that households that are saving to invest in their own businesses or in their own homes indeed have significantly safer financial portfolios.A LARGE PORTION OF PRIVATE ASSETS are invested in personal illiquid projects. These are projects that must be partly self-financed and are costly to sell. According to the 1995 Survey of Consumer Finances~SCF!, residential housing and capital invested in unincorporated businesses account for 41.2 percent and 19.1 percent, respectively, of household wealth. 1 In this paper, we study the impact of these personal illiquid projects on individuals' portfolios of financial assets. Personal projects inf luence portfolio choice in two ways. First, financial assets can be used to provide diversification against bad outcomes of personal projects. This interaction is well recognized in the literature as it emanates from standard portfolio theory. Second, financial assets can be used to provide liquidity to personal projects when the timing of investment in these projects is important. This latter interaction is the focus of our paper. We show that it helps explain why individuals, particularly young investors and entrepreneurs, have larger than expected holdings of safe financial assets.In the financial planning literature, young investors are advised to hold a larger share of risky assets in their financial portfolios in order to capture the superior expected return of these assets. As investors grow older, they are advised to gradually reduce their holdings of risky assets. Jagannathan and Kocherlakota~1996! show that this advice is economically sound as long as the investor's human wealth is relatively uncorrelated with stock returns.

We show that highly liquid Exchange‐Traded Funds (ETFs), especially those that are more liquid than their underlying basket of securities (i.e., positive relative liquidity), are particularly attractive to investors. Using three definitions of liquidity, we find that relative liquidity predicts net fund flows, as well as inflows and outflows positively and significantly. We further document a liquidity clientele among institutional investors: (i) relative liquidity is significantly more important for short‐ than for long‐term investors; and (ii) relative liquidity is inversely related to investors’ average holding duration in the ETFs. These two findings provide evidence that relative liquidity encourages short‐term demand.

"Using a large data set with 80,214 repeat sales, we find that the real return on a diversified portfolio of modern prints sold at auctions worldwide averaged a modest 1.51% during the period 1977-2004. We address several issues regarding the performance of modern prints as investments: the selection bias arising from the self-interest of auction houses; the impact of an ever-expanding universe of auction houses on investment returns; the "masterpiece" effect, or whether more expensive works of art outperform the market as a whole; and the differences in returns that arise due to random fluctuations in collector tastes." ("JEL" Z11, G11, G14) Copyright (c) 2007 Western Economic Association International.

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