Arbeitspapier
Richer earnings dynamics, consumption and portfolio choice over the life cycle
Households face earnings risk which is non-normal and varies by age and over the income distribution. We show that allowing for these rich features of earnings dynamics, in the context of a structurally estimated life-cycle portfolio choice model, helps to rationalize the limited participation of households in the stock market and their low holdings of risky assets. Because households are subject to more background risk than previously considered, the estimated model implies a substantially lower coefficient of risk aversion. We also find renewed support for rule-of-thumb investment strategies under the model with the nonlinear earnings process.
- Sprache
-
Englisch
- ISBN
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978-92-899-6073-1
- Erschienen in
-
Series: ECB Working Paper ; No. 2810
- Klassifikation
-
Wirtschaft
Portfolio Choice; Investment Decisions
Asset Pricing; Trading Volume; Bond Interest Rates
Household Saving; Personal Finance
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Human Capital; Skills; Occupational Choice; Labor Productivity
- Thema
-
stock ownership
earnings risk
wealth accumulation
household finance
simulated method of moments
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Gálvez, Julio
Paz Pardo, Gonzalo
- Ereignis
-
Veröffentlichung
- (wer)
-
European Central Bank (ECB)
- (wo)
-
Frankfurt a. M.
- (wann)
-
2023
- DOI
-
doi:10.2866/790353
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:45 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Gálvez, Julio
- Paz Pardo, Gonzalo
- European Central Bank (ECB)
Entstanden
- 2023