• Nicholas Apergis University of Piraeus
Keywords: financial portfolio choice; business cycles; household surveys; demographic characteristics


This study investigates how business cycles regimes can explain financial portfolio decisions across investors and countries, given a number of idiosyncratic characteristics. In particular, the empirical strategy studies the relationship between risky asset shares and linear and nonlinear business cycles. The empirical part employs data from household surveys in the U.K., France, Germany, Japan, the Netherlands, Sweden, Norway, Denmark, Italy, Switzerland, Canada, Australia and New Zealand for the period of 1998 to 2012. The analysis provides evidence that while a linear framework does not provide a statistically significant association between business cycles and decisions in risky investments, a nonlinear business cycles context leads investors to decrease their risky investments stronger during recessions than they increase them during booms, lending support to the hypothesis of interaction between financial risks and other determinants. The results are expected to signal interesting flashing points not only to market participants and portfolio managers, but mainly to policy makers and the way their economic policy decisions affect the working of financial markets.


Agnew, J., P. Balduzzi, A. Sunden, (2003). Portfolio Choice and Trading in a Large 401(k) Plan. American Economic Review, 93, 193-215.
Alan S., T. Crossley, H. Low, (2012). Saving on a Rainy Day, Borrowing for a Rainy Day. Institute for Fiscal Studies (IFS) Working Paper W12/11, Washington, D.C., retrieved from:
Amromin, G., S.A. Sharpe, (2009). Expectations of Risk and Return Among Household Investors: Are their Sharpe Ratios Countercyclical? Working Paper, Federal Reserve Bank of Chicago and Federal Reserve Board.
Arrondel, L., H.C. Pardo, X. Oliver, (2010). Temperance in Stock Market Participants: Evidence from France. Economica, 77, 314-333.
Banks, J., R. Crawford, T.F. Crossley, C. Emmerson, (2013). Financial Crisis Wealth Losses and Responses among Older Households in England. Fiscal Studies, 34, 231-254.
Barber, B.M., T. Odean, (2001). Boys will be Boys: Gender, Overconfidence, and Common Stock Investment. Quarterly Journal of Economics, 116, 261-292.
Bateman, H., T. Islam, J. Louviere, S. Satchell, S. Thorp, (2011). Retirement Investor Risk Tolerance in Tranquil and Crisis Periods: Experimental Survey Evidence. Journal of Behavioral Finance, 12, 201-218.
Bertaut, C.C., H. Starr-Mccluer, (2002). Household Portfolios in the United States. In L. Guiso. M. Haliassos and T. Japelli (Eds.), Household Portfolios, MIT Press, Cambridge, MA.
Bodman, P.M., (2001). Steepness and Deepness in the Australian Macroeconomy. Applied Economics, 33, 375-382.
Bucciol, A., R. Miniaci, (2013). Financial Risk Attitude, Business Cycles and Perceived Risk Exposure. Netspar Working Paper, available online at
Byrnes, J.P., D.C. Miller, W.D. Schafer, (1999). Gender Differences in Risk Taking: A Meta-Analysis. Psychological Bulletin, 125, 367-383.
Caballero, R., P. Kurlat, (2008). Flight to Quality and Bailouts: Policy Remarks and Literature Review. Working Paper 08-21, MIT Economics Department.
Calvet, L.E., P. Sodini, (2010). Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios. Working Paper, No. 15859, National Bureau of Economic Research.
Calvet, L.E., J.Y. Campbell, P. Sodini, (2007). Down or Out: Assessing the Welfare Costs of Household Investment Mistakes. Journal of Political Economy, 115, 707-747.
Campbell, J.Y., (2006). House Finance. Journal of Finance, 61, 1553-1605.
Cancelo, J.R., (2007). Cyclical Asymmetries in Unemployment Rates: International Evidence. International Advances in Economic Research, 13, 334-346.
Cancelo, J.R., E. Mourelle, (2005). Modeling Cyclical Asymmetries in GDP: International Evidence. Atlantic Economic Journal, 33, 297-309.
Cardak, B.A., R.K. Wilkins, (2009). The Determinants of Household Risky Asset Holdings: Australian Evidence on Background Risk and Other Factors. Journal of Banking and Finance, 33, 850-860.
Chiappori, P.A., K. Samphantharak, S. Schulhofer-Wohl, R.M. Townsed, (2013). Heterogeneity and Risk Sharing in Village Economies. Working Paper No. 683, Research Department, Federal Reserve Bank of Minneapolis.
Christiansen, C., J. Rangvid, J.S. Joensen, (2008). Are Economists more Likely to Hold Stocks? Review of Finance, 12, 465-494.
Cocco, J., (2005). Portfolio Choice in the Presence of Housing. Review of Financial Studies, 18, 535-567.
Cochrane, J.H., (2011). Understanding Policy in the Great Recession: Some Unpleasant Fiscal Arithmetic. European Economic Review, 55, 2-30.
Crossley, T.F., H. Low, C. O’Dea, (2013). Household Consumption through Recent Recessions. Fiscal Studies, 34, 203-229.
Delong, B., (2010). The Flight to Quality: Project Syndicate. Retrieved from:
Dohmen, T., A. Falk, D. Huffman, U. Sunde, J. Schupp, G.G. Wagner, (2011). Individual Risk Attitudes: Measurement, Determinants, and Behavioral Consequences. Journal of the European Economic Association, 9, 522-550.
Easley, D., M. O’Hara, (2010). Liquidity and Valuation in an Uncertain World. Journal of Financial Economics, 97, 1-11.
Enders, W., C.W.J. Granger, (1998). Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates. Journal of Business and Economic Statistics, 16, 304-311.
Gardini, A., A. Magi, (2007). Stock Market Participation: New Empirical Evidence from Italian Households Behavior. Giornale degli Economisti e Annali di Economia, 66, 93-114.
Granger, C.W.J., T. Terasvirta, H.M. Anderson, (1993). Modeling Nonlinearity Over the Business Cycle. In Stock J.H., Watson, M.W. (Eds.), Business Cycles, Indicators and Forecasting: Studies in Business Cycles, National Bureau of Economic Research. The Chicago Press: Chicago.
Guiso, L., P. Sapeinza, L. Zingales, (2013). Time Varying Risk Aversion. NBER Working Paper, online at
Guiso, L., M. Haliassos, T. Jappelli, (2003). Household Stockholding in Europe: Where Do We Stand and Where Do We Go? Economic Policy, 18, 123-169.
Haliassos, M., C.C. Bertaut, (1995). Why Do So Few Hold Stocks? The Economic Journal, 105, 1110-1129.
Hansen, B.E., (1999). Threshold Effects in Non-Dynamic Panels: Estimation, Testing, and Inference. Journal of Econometrics, 93, 345-368.
Hansen, B.E., (1996). Inference when a Nuisance Parameter is not Identified under the Null Hypothesis. Econometrica, 64, 413-430.
Harvey, A.C., T. Trimbur, (2003). General Model-Based Filters for Extracting Trends and Cycles in Economic Time Series. Review of Economics and Statistics, 85, 244-255.
Hausman, J.A., (1978). Specification Tests in Econometrics. Econometrica, 46, 1251-1271.
Heaton, J., D. Lucas, (2000). Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk. Journal of Finance, 55, 1163-1198.
Hoffmann, A.O.J., T. Post, J.M.E. Pennings, (2013). Individual Investor Perceptions and Behavior during the Financial Crisis. Journal of Banking and Finance, 37, 60-74.
Ludvigson, S., C. Steindel, (1991). How Important is the Stock Market Effect on Consumption? Federal Reserve Bank of New York Economic Policy Review, 7, 29-51.
Lynch, A.W., S. Tan, (2011). Labor Income Dynamics at Business Cycle Frequencies: Implications for Portfolio Choice. Journal of Financial Economics, 101, 333-359.
Malmendier, U., S. Nagel, (2011). Depression Babies: Do Macroeconomic Experiences Affect Risk Taking? Quarterly Journal of Economics, 373-416.
Moore, K.B., M.G. Palumbo, (2010). The Finances of American Households in the Past Three Recessions: Evidence from the Survey of Consumer Finances. Working Paper, Staff Paper Federal Reserve Board.
Narayan, P.K., (2009). Are Health Expenditures and GDP Characterized by Asymmetric Behavior? Evidence from 11 OECD Countries. Applied Economics, 41, 531-536.
Narayan, P.K., S. Narayan, (2008). Examining the Asymmetric Behavior of Macroeconomic Aggregates in Asian Economies. Pacific Economic Review, 13, 567-574.
Narayan, S., P.K. Narayan, (2007). Understanding Asymmetries in Macroeconomic Aggregates: The Case of Singapore. Applied Economics Letters, 14, 905-908.
Naudon, A., M. Tapia, (2004). Ignorance, Fixed Costs, and the Stock-Market Participation Puzzle. Econometric Society 2004, Latin American Meetings 252.
Necker, S., M. Ziegelmeyer, (2013). Risk Taking after the Financial Crisis. Working Paper, available at:
Nofsinger, J.R., (2012). Household Behavior and Boom/Bust Cycles. Journal of Financial Stability, 8, 161-173.
Parke, L.E., (1998). How are Participants Investing their Accounts in Participant-Directed Individual Account Pension Plans? American Economic Review Papers and Proceedings, 88, 212-216.
Peel, D.A., A.E.H. Speight, (2000). Threshold Nonlinearities in Output: Some International Evidence. Applied Economics, 30, 323-333.
Razzak, W.A., (2001). Business Cycle Asymmetries: International Evidence. Review of Economic Dynamics, 4, 230-243.
Sinai, T., N.S. Souleles, (2005). Owner-Occupied Housing as a Hedge against Rent Risk. Quarterly Journal of Economics, 120, 763-789.
Skalin, J., T. Terasvirta, (2002). Modeling Asymmetries and Moving Equilibria in Unemployment Rates. Macroeconomic Dynamics, 6, 202-241.
Sunden, A.E., B.J. Surette, (1998). Gender Differences in the Allocation of Assets in Retirement Savings Plans. American Economic Review Papers and Proceedings, 88, 207-211.
Terasvirta, T., H.M. Anderson, (1992). Characterizing Nonlinearites in Business Cycles Using Smooth Transition Autoregressive Models. Journal of Applied Econometrics, 7, S119-S136.
Tracy, J., H. Schneider, (2001). Stocks in the Household Portfolio: A Look Back at the 1990s. Current Issues in Economics and Finance, 7, 1-6.
Van Dijk, D., P.H. Franses, (1999). Modeling Multiple Regimes in the Business Cycle. Macroeconomic Dynamics, 3, 311-340.
Verbugge, R., (1997). Investigating Cyclical Asymmetries. Studies in Nonlinear Dynamics and Econometrics, 2, 15-22.
Wachter, J.A., M. Yogo, (2010). Why do Household Portfolio Shares Rise in Wealth? Review of Financial Studies, 23, 3929-3965.
Weber, M., E.U. Weber, A. Nosic, (2013). Who Takes Risks When and Why: Determinants of Changes in Investor Risk Taking. Review of Finance, 17, 847-883.
Zarnowitz, V., (1992). Business Cycles, Theory, History, Indicators, and Forecasting. The University of Chicago Press: London.