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Hedging labor income risk

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  • Betermier, Sebastien
  • Jansson, Thomas
  • Parlour, Christine
  • Walden, Johan

Abstract

We use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and financial investment decisions. In particular, we relate changes in wage volatility to changes in the portfolio holdings for households that switched industries between 1999 and 2002. We find that households do adjust their portfolio holdings when switching jobs, which is consistent with the idea that households hedge their human capital risk in the stock market. The results are statistically and economically significant. A household going from an industry with low wage volatility to one with high volatility ceteris paribus decreases its portfolio share of risky assets by up to 35%, or $15,575.

Suggested Citation

  • Betermier, Sebastien & Jansson, Thomas & Parlour, Christine & Walden, Johan, 2012. "Hedging labor income risk," Journal of Financial Economics, Elsevier, vol. 105(3), pages 622-639.
    • Handle: RePEc:eee:jfinec:v:105:y:2012:i:3:p:622-639
    DOI: 10.1016/j.jfineco.2012.05.001
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    More about this item

    Keywords

    Investment decisions; Hedging; Human capital;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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