The impact of the investment expectation gap on households’ risky financial asset investment

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Rational household asset allocation is crucial for the accumulation of household wealth. However, there is still a widespread phenomenon of limited participation among households. This paper aims to explore the impact of the investment expectation gap on households’ risky financial asset investment. Utilizing data from the China Household Finance Survey 2019, this paper systematically investigates the role of the investment expectation gap in risky financial asset investment through the Probit and Tobit models. The study reveals that the investment expectation gap has a significant negative impact on the investment probability (Average Marginal Effect, –0.118, p < 0.01) and holding proportion (β, –0.082, p < 0.01) of household investment in risky financial assets. This conclusion remains robust after conducting robustness tests by replacing the explanatory variable and performing subsample tests and endogenous treatment. The analysis of transmission mechanisms revealed that an expanding of the investment expectation gap would concurrently result in a decline in households’ assessment of stock’s profitability (Average Marginal Effect, –0.080, p < 0.01), the satisfaction with current asset allocation (β, –0.167, p < 0.05), and the subjective well-being of household members (β, –0.289, p < 0.01). Furthermore, the investment expectation gap not only hampers household investment in risky financial asset, but also diminish the household savings rate (β, –0.055, p < 0.01). This study demonstrates that helping households form reasonable expectations for risky financial assets investment returns will contribute to diversifying household asset allocation and enhancing satisfaction with investment decisions.

Acknowledgment
This study is funded by the Chongqing Social Science Planning Fund, grant number (2021BS052).

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    • Table 1. Variable description and descriptive statistics
    • Table 2. The impact of the investment expectation gap on the households holding risky financial asset investment
    • Table 3. Regression results of robustness test – The substitution of explained variable
    • Table 4. Regression results of robustness test – Subsample
    • Table 5. Regression results of endogenous treatment
    • Table 6. Investment expectation gap and household perception of stock asset profitability
    • Table 7. The impact of investment expectation gap on happiness/satisfaction with asset allocation
    • Table 8. The impact of investment expectation gap on household savings rate
    • Conceptualization
      Xinzhe Xu
    • Data curation
      Xinzhe Xu
    • Formal Analysis
      Xinzhe Xu
    • Funding acquisition
      Xinzhe Xu
    • Investigation
      Xinzhe Xu
    • Methodology
      Xinzhe Xu
    • Project administration
      Xinzhe Xu
    • Validation
      Xinzhe Xu
    • Visualization
      Xinzhe Xu
    • Writing – original draft
      Xinzhe Xu
    • Writing – review & editing
      Xinzhe Xu