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
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

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Gálvez, Julio
  • Paz Pardo, Gonzalo
  • European Central Bank (ECB)

Entstanden

  • 2023

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