Financial Expectations, Consumption and Saving: A Microeconomic Analysis

We explore the determinants of individuals´ financial expectations using data from the British Household Panel Survey (BHPS) 1991-2001. Our findings suggest that individuals´ financial predictions are influenced by both the life cycle and the business cycle. We also investigate the extent to which the accuracy of past financial expectations affects current financial expectations. Interestingly, only past financial optimism matters, regardless of the accuracy of the prediction. We also explore the relationship between financial realisations and expectations and we find that expectations tend to fall short of financial realisations. Finally, we investigate the relationship between financial expectations, savings and consumption. Our findings suggest that financial optimism is inversely associated with savings and that current financial expectations serve to predict future consumption

Expectations, reservation wages and employment: Evidence from British panel data

In this paper, we explore the relationship between expectations and reservation wages for a sample of unemployed individuals using panel data drawn from the British Household Panel Survey, 1996 to 2005. To be specific, we initially investigate the determinants of expectations relating to the individual´s financial situation and employment prospects over the next 12 months. Our findings suggest that job search and education are positively associated with financial optimism and confidence regarding future employment prospects. Conversely, the length of time out of employment and age are associated with pessimistic expectations. Propensity score matching techniques enable us to adopt a quasi experimental approach to ascertain how an individual´s expectations regarding their future financial situation as well as expectations regarding securing future employment influence the setting of reservation wages at the individual level. Optimism over future finances and future job prospects are associated with a higher reservation wage in both the matched and unmatched estimates. Furthermore, confidence over securing future employment is associated with a higher probability of actually gaining employment in the next period

Social Interaction and Stock Market Participation: Evidence from British Panel Data

This paper uses data from the British National Child Development Study to investigate the relationship between social interaction and participation in the stock market through holding stocks and/or shares at the individual level. In accordance with the existing literature, the results reveal that a positive relationship exists between social interaction and stock market participation, when both are measured concurrently. Furthermore, this relationship prevails across a range of measures of social interaction and social capital. In addition, we make a potentially important contribution to the existing literature by exploiting the panel nature of the data in order to explore the robustness of the cross-sectional findings. We find that the positive relationship between stock market participation and social interaction prevails within a fixed effects logit framework, which controls for time invariant unobserved effects

Following in Your Parents' Footsteps? Empirical Analysis of Matched Parent-Offspring Test Scores

In this paper, we explore whether an intergenerational relationship exists between the reading and mathematics test scores, taken at ages 7, 11 and 16, of a cohort of individuals born in 1958 and the equivalent test scores of their offspring measured in 1991. Our results suggest that how the parent performs in reading and mathematics during their childhood is positively related to the corresponding reading and mathematics test scores of their offspring as measured at a similar age. Our findings imply that parental ability in numeracy and literacy as a child is positively associated with the ability in numeracy and literacy of their offspring. With respect to gender, a father´s (mother´s) test score generally has a positive influence on the test scores of their daughter (son)

Social Interaction and Intergenerational Skill Transfer

We explore the relationship between educational attainment and social interaction using individual level data from the British National Child Development Study. To be specific, we analyze whether an intergenerational aspect to this relationship exists by examining the relationship between the educational attainment of children and the degree of formal social activity undertaken by their parents. In accordance with the existing literature, our results support a positive association between education and social interaction. Furthermore, our results suggest that children´s scores in reading, mathematics and vocabulary tests are positively associated with the extent of their parents´ formal social interaction. This relationship is robust to controlling for the degree of intra-family based social interaction and the social activities of the child

Reservation Wages, Expected wages and the duration of Unemployment: evidence from British Panel data

In this paper we analyse the role of wage expectations in an empirical model of incomplete spells of unemployment and reservation wages. To be specific, we model the duration of unemployment, reservation wages and expected wages simultaneously for a sample of individuals who are not in work, where wage expectations are identified via an exogenous policy shock based upon the introduction of Working Family Tax Credits (WFTC) in the UK. The results from the empirical analysis, which is based on the British Household Panel Survey, suggest that WFTC eligibility served to increase expected wages and that expected wages are positively associated with reservation wages. In addition, incorporating wage expectations into the econometric framework was found to influence the magnitude of the key elasticities: namely the elasticity of unemployment duration with respect to the reservation wage and the elasticity of the reservation wage with respect to unemployment duration