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ERIC Number: EJ859563
Record Type: Journal
Publication Date: 2009
Pages: 14
Abstractor: As Provided
ISSN: ISSN-1052-3073
The Effects of the Capital Accumulation Ratio on Wealth
Harness, Nathaniel J.; Finke, Michael S.; Chatterjee, Swarn
Journal of Financial Counseling and Planning, v20 n1 p44-57 2009
The capital accumulation ratio (CAR) is commonly used in academic research as a measure of household portfolio quality. This study tested whether a higher initial CAR impacts change in wealth over a decade among households in the accumulation life cycle stage. Meeting the 25% CAR guideline resulted in a 28.1% increase in net worth between 1994 and 2004. When broken into quartiles, the relationship between CAR and wealth was monotonic and statistically significant. However, this increase comes at a cost; those who met the 25% threshold CAR increased their standard deviation of net worth from 1994 to 2004 by 8.1%, and those in the highest CAR quartile saw their wealth dispersion increase by 36%. Results from this study suggest that meeting the 25% CAR threshold leads to greater wealth over time at the tradeoff of higher variation in future wealth. (Contains 6 endnotes and 5 tables.)
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Publication Type: Journal Articles; Reports - Research
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A