Nonlinear decomposition analysis of risk aversion and stock-holding behaviour of US households

Using the Survey of Consumer Finances of 2001 and 2004, this article provides a nonlinear decomposition analysis to find the relative importance of household risk preference characteristics after allowing adjustment for distribution of other household characteristics. We find significant contributions of net worth, college education, inherited wealth, managerial and low unemployment risk occupation in explaining the differences in probability of stockholding among the least and higher risk-averse households. The results show the impact of internet bubble and recession in post-9/11 environment on risk preference groups in terms of their stockholding behaviour.