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Household Portfolios in a Secular Stagnation World

: Evidence from Japan

March 28, 2016
Kosuke Aoki*1
Alexander Michaelides*2
Kalin Nikolov*3


We document low stock market participation rates and high proportions of money in Japanese household portfolios. To replicate these facts, we introduce a money demand motive in a life-cycle portfolio choice model and calibrate the model's structural parameters to match Japanese household financial data. Using counterfactual analysis we find that low expected stock returns, low expected inflation and high fixed costs of stock market participation are the main determinants of Japanese household portfolios.

JEL Classification
E41, G11

Life Cycle Models, Portfolio Choice, Inflation, Money Demand, Stock Market Participation, Uninsurable Labor Income Risk, Japanese portfolios

This paper was presented at the 6th conference jointly organized by the Bank of Japan and the University of Tokyo on 26th November 2015. We thank Naohisa Hirakata, Arito Ono, Junnosuke Shino, Yosuke Yasui and especially Charles Yuji Horioka for helpful discussion and comments, Naohito Abe and Tomoaki Yamada for sharing their data on household income profiles, and Masao Fukui, Miho Kawabe and Kazuhiro Teramoto for excellent research assistance. The latest version of the draft is available on the authors' web page. Aoki thanks financial support from the Center for Advanced Research in Finance (CARF, University of Tokyo) and the JSPS Grant-in-Aid for Scientific Research No. 24223003. The views expressed here are those of the authors and should not be interpreted as those of the European Central Bank. We are responsible for any remaining errors.

  1. *1Faculty of Economics, University of Tokyo
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  2. *2Department of Finance, Imperial College Business School
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  3. *3Research Department, European Central Bank
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