Investment Choice and Asset Allocation of Italian Households: the Discrete-Continuous Approach

Abstract

Financial and monetary policies are considered to be effective depending on the reaction of financial markets which are increasingly populated by households. In this paper, I derive a Financial Almost Ideal (FAI) Demand System from intertemporal settings and I estimate it by highlighting the determinants of both limited participation to financial markets and asset substitutability/complementarity in the allocating stage. Demand theory is not statistically rejected and shows deposits-fixed income and variable income-fixed income complementarity and deposits-variable income substitutability. Furthermore, deposits and fixed income assets are inferior assets, while variable income assets do not.