This article jointly estimates the relationship between stock share and expectations and risk preferences. The survey allows individual-level, quantitative estimates of risk tolerance and of the perceived mean, and variance of stock returns. These estimates have economically and statistically significant association for the distribution of stock shares with relative magnitudes in proportion with the predictions of theories. Incorporating survey measurement error in the estimation model increases the estimated associations 2-fold, but they are still substantially attenuated being only about 5% of what benchmark finance theories predict. Because of the careful attention in the estimation to measurement error, the attenuation likely arises from economic behavior rather than errors in variables.

Additional Metadata
Keywords Household portfolio choice, Risk preference, Subjective stock returns distribution, Survey measurement
Persistent URL dx.doi.org/10.1080/07350015.2018.1549560
Journal Journal of Business and Economic Statistics
Citation
Ameriks, J. (John), Kézdi, G. (Gábor), Lee, M, & Shapiro, M.D. (Matthew D.). (2019). Heterogeneity in Expectations, Risk Tolerance, and Household Stock Shares: The Attenuation Puzzle. Journal of Business and Economic Statistics. doi:10.1080/07350015.2018.1549560