Portfolio Choice Over the Life-cycle in the Presence of 'trickle Down' Labor Income - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Portfolio Choice Over the Life-cycle in the Presence of 'trickle Down' Labor Income write by Luca Benzoni. This book was released on 2005. Portfolio Choice Over the Life-cycle in the Presence of 'trickle Down' Labor Income available in PDF, EPUB and Kindle. Empirical evidence shows that changes in aggregate labor income and stock market returns exhibit only weak correlation at short horizons. As we document below, however, this correlation increases substantially at longer horizons, which provides at least suggestive evidence that stock returns and labor income are cointegrated. In this paper, we investigate the implications of such a cointegrated relation for life-cycle optimal portfolio and consumption decisions of an agent whose non-tradable labor income faces permanent and temporary idiosyncratic shocks. We find that, under economically plausible calibrations, the optimal portfolio choice for the young investor is to take a substantial ¿Xem short} position in the risky portfolio, in spite of the large risk premium associated with it. Intuitively, this occurs because the cointegration effect makes the present value of future labor income flows stock-like' for the young agent. However, for older agents who have shorter times-to-retirement, the cointegration effect does not have sufficient time to act, and the remaining human capital becomes more bond-like.' Together, these effects create a hump-shaped optimal portfolio decision for the agent over the life cycle, consistent with empirical observation
Portfolio Choice Over the Life-Cycle in the Presence of Cointegration Between Labor Income and Inflation
Portfolio Choice Over the Life-Cycle in the Presence of Cointegration Between Labor Income and Inflation - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Portfolio Choice Over the Life-Cycle in the Presence of Cointegration Between Labor Income and Inflation write by Yang Zhou. This book was released on 2015. Portfolio Choice Over the Life-Cycle in the Presence of Cointegration Between Labor Income and Inflation available in PDF, EPUB and Kindle. We study portfolio choice for a finite-horizon investor whose labor income is cointegrated with inflation. We show that this long-run relationship has substantial impact on the riskiness of human capital and consequently on the optimal portfolio strategy. Because cointegration raises the long-run correlation between human capital and inflation, young investors' human capital effectively hedges inflation risk and crowds out the allocation to inflation-indexed bonds. However, the hedging power of human capital diminishes for older investors because of a weaker cointegration effect and less importance of human capital in total wealth. These effects together show that inflation-indexed bonds matter more for older investors than for young investors.
Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk
Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk write by Valery Polkovnichenko. This book was released on 2005. Life-Cycle Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk available in PDF, EPUB and Kindle. This paper explores the implications of the additive and endogenous habit formation preferences in the context of a life-cycle model of an investor who has stochastic uninsurable labor income. To solve the model, I analytically derive the habit - wealth feasibility constraints and show that they depend on the worst possible path of future labor income and on the habit strength, but not on the probability of the worst income. When there is only a slim chance of a severe income shock, the model implies much more conservative portfolios. The model also predicts that for some low to moderately wealthy households, the portfolio share allocated to stocks increases with wealth. Because of this feature, the model can generate more conservative portfolios for younger than for middle-aged households. One controversial finding is that for high values of the habit strength parameter, usually required for the resolution of asset pricing puzzles in general equilibrium, the life-cycle model predicts counterfactually high wealth accumulation.
Portfolio Choice Over the Life-Cycle when the Stock and Labor Markets are Cointegrated
Portfolio Choice Over the Life-Cycle when the Stock and Labor Markets are Cointegrated - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Portfolio Choice Over the Life-Cycle when the Stock and Labor Markets are Cointegrated write by Luca Benzoni. This book was released on 2011. Portfolio Choice Over the Life-Cycle when the Stock and Labor Markets are Cointegrated available in PDF, EPUB and Kindle. We study portfolio choice when labor income and dividends are cointegrated. Economically plausible calibrations suggest young investors should take substantial short positions in the stock market. Because of cointegration the young agent's human capital electively becomes stock-like. However, for older agents with shorter times - to - retirement, cointegration does not have sufficient time to act, and thus their human capital becomes more bond-like. Together, these exects create hump - shaped life - cycle portfolio holdings, consistent with empirical observation. These results hold even when asset return predictability is accounted for.
Consumption and Portfolio Choice Over the Life Cycle
Consumption and Portfolio Choice Over the Life Cycle - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Consumption and Portfolio Choice Over the Life Cycle write by o F. Cocco. This book was released on 2013. Consumption and Portfolio Choice Over the Life Cycle available in PDF, EPUB and Kindle. This article solves a realistically calibrated life cycle model of consumption and portfolio choice with non-tradable labor income and borrowing constraints. Since labor income substitutes for riskless asset holdings, the optimal share invested in equities is roughly decreasing over life. We compute a measure of the importance of human capital for investment behavior. We find that ignoring labor income generates large utility costs, while the cost of ignoring only its risk is an order of magnitude smaller, except when we allow for a disastrous labor income shock. Moreover, we study the implications of introducing endogenous borrowing constraints in this incomplete-markets setting.
