Differences in Portfolios Across Countries: Economic Environment Versus Household Characteristics

Abstract

We document and study international differences in both ownership and holdings of stocks, private businesses, homes, and mortgages among households aged fifty or more in thirteen countries, using new and comparable survey data. We employ counterfactual techniques to decompose observed differences across the Atlantic, within the US, and within Europe into those arising from differences in population characteristics and differences in economic environments. We then correlate the latter differences to country-level indicators. Ownership across the range of the assets considered tends to be more widespread among US households. We document that shortly prior to the current crisis, US households tended to invest larger amounts in stocks and smaller ones in homes, and to have larger mortgages in older age, even controlling for characteristics. This is consistent with the high prevalence of negative equity associated with the current crisis. More generally, we find that differences in household characteristics often play a small role, while differences in economic environments tend to explain most of the observed differences in ownership rates and in amounts held. The latter differences are much more pronounced among European countries than among US regions, suggesting further potential for harmonization of policies and institutions.

The risk premium and long-run global imbalances

“…According to Guiso et al (2001), in 1998 the equity market participation rate in the US was 49%, whereas the rates in Italy, the Netherlands and the UK in the same year were 19%, 35% and 31%, respectively. In addition, Christelis et al (2010) find that the average participation rate among the senior population in 12 European countries is only 26%. Van Rooij et al (2011) andIwaisako (2009) find low equity market participation rates in Holland, 23.8% and in Japan, 25%, respectively.…”

“…As for the ROW, the equity market participation rate is significantly lower than that in the US even among many high-income countries (Guiso et al, 2001). The rate is between only 20% and 30% in Europe and Japan (Christelis et al, 2010;Van Rooij et al, 2011;Iwaisako, 2009). We set the fraction of non-participants in the ROW to 70%, which is modest given that the ROW consists of a large number of developing countries with very low market participation.…”

“…Van Rooij et al (2011) andIwaisako (2009) find low equity market participation rates in Holland, 23.8% and in Japan, 25%, respectively. As for the share of equity holdings, Christelis et al (2010) show that US equity market participants hold larger equity positions than European participants in general.…”

“…For this reason, we assume that the ROW non-Mertonian equity traders hold the market portfolio, which has a 25% equity share. This equity share is conservative, given that the equity shares among market participants are significantly higher in the US than in Europe in Christelis et al (2010).…”

“…Our focus is motivated by empirical evidence suggesting a wide range of portfolio heterogeneity across households both within a country and across countries (Campbell, 2006;Guiso and Sodini, 2012;Christelis et al, 2010). To emphasize the demand-side heterogeneity in portfolios, we assume that assets Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/jme issued in every country are identical but that households face different restrictions on asset trade.…”