TESTING THE CONSTANCY OF RELATIVE RISK-AVERSION - AN ANALYSIS OF JAPANESE HOUSEHOLD FINANCIAL ASSET DATA

The paper examined the constancy of relative risk aversion (RRA) with respect to total asset from Japanese individual asset data. The paper paid attention to the fact that a substantial portion of households do not hold any risky assets. Since the OLS yields a biased estimate, we modified the estimation procedure that derives the relationship between RRA and a discrete choice of holding risky assets. The result suggests that, contrary to our speculation, constant RRA is not consistent with the data, and that there is a moderate decreasing tendency linked to total asset but that its rate of change tapers off as total asset increases. © 1992.