Household Asset Portfolio Diversification: Evidence from the Household, Income and Labour Dynamics in Australia (Hilda) Survey

This paper examines the impact of demographic, socioeconomic and risk aversion factors on diversification in Australian household asset portfolios using Wave 6 of the HILDA Survey. Household assets are categorised as home and other property, superannuation, equity and cash investment, business assets, bank accounts, life insurance, trust funds and collectibles. The characteristics examined include family structure and composition, the source and level of income, age, gender and attitudes towards financial risk taking. The diversification measures comprise a naive index, a Hirschman-Herfindahl concentration index, a Shannon entropy index, absolute and relative benchmark indexes and a market asset share index. Tobit models are used to identify the source and magnitude of the factors associated with diversification. The results indicate that Australian household portfolios have very low levels of asset diversification and that the factors analysed exert a major impact. Importantly, the behaviour observed in household portfolios appears to bear little relation to the central predictions of classic portfolio theory.