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Portfolio Choice and Precautionary Savings

Author

Listed:
  • Riccardo Calcagno

    (EMLYON Business School & CeRP Collegio Carlo Alberto)

  • Mariacristina Rossi

    (University of Turin & CeRP Collegio Carlo Alberto)

Abstract

We study the effect on savings of an increase in the capital risk of the investment opportunities when the representative consumer is allowed to optimally choose her portfolio. Sandmo (1970) and Levhari and Srinivasan (1969) prove that individuals with high risk-aversion and time-separable, power utility increase their optimal savings when capital risk increases holding constant the expected return of the risky asset. We obtain the opposite effect when the consumer chooses her portfolio allocation optimally.

Suggested Citation

  • Riccardo Calcagno & Mariacristina Rossi, 2011. "Portfolio Choice and Precautionary Savings," Economics Bulletin, AccessEcon, vol. 31(2), pages 1353-1361.
    • Handle: RePEc:ebl:ecbull:eb-10-00735
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    References listed on IDEAS

    as
    1. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-871, September.
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    Cited by:

    1. Mariacristina Rossi & Eva Sierminska, 2015. "Housing Decisions, Family Types and Gender. A look across LIS countries," LIS Working papers 654, LIS Cross-National Data Center in Luxembourg.

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    More about this item

    Keywords

    Precautionary Saving; Capital Risk; Portfolio Allocation; Life Cycle Savings.;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G0 - Financial Economics - - General

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