Resumen:
This paper provides micro-level evidence on the effects of economic uncertainty on household portfolio choices driven by precautionary motives. We propose a conceptual framework illustrating how increased economic uncertainty—through heightened volatility in financial assetreturns and tighter credit constraints—reduces household participation in risky asset investments while promoting a shift toward risk-free assets. Using region-level economic uncertainty indices and household-level portfolio data from China, we empirically confirm these theoretical predictions. To address potential endogeneity, we employ the incidence of extreme temperature as an instrumental variable, yielding consistent and statistically significant results. Additionally, our results reveal that economic uncertainty exerts a more significant impact on households with higher levels of human capital, higher financial literacy, and a risk-appetite preference, due to their heightened sensitivity to financial risks. This study contributes to the literature by providing robust micro-level evidence on how economic uncertainty influences household financial deci
sion-making.
