IDEAS home Printed from https://ideas.repec.org/a/oup/rfinst/v35y2022i9p4016-4054..html
   My bibliography  Save this article

Countercyclical Labor Income Risk and Portfolio Choices over the Life Cycle

Author

Listed:
  • Sylvain Catherine

Abstract

I estimate a life cycle model of portfolio choices that incorporates the relationship between market returns and the skewness of idiosyncratic income shocks. The cyclicality of skewness can explain (a) low stock market participation among young households, (b) why the equity share of participants slightly increases until retirement, and (c) why renters invest less in stocks than do homeowners. With a relative risk aversion of 6 and yearly participation cost of $250, the model matches the evolution of wealth, participation, and conditional equity shares over the life cycle. Nevertheless, cyclical skewness increases the equity premium by at most 0.5 percentage points.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Sylvain Catherine, 2022. "Countercyclical Labor Income Risk and Portfolio Choices over the Life Cycle," The Review of Financial Studies, Society for Financial Studies, vol. 35(9), pages 4016-4054.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:9:p:4016-4054.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhab136
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Horneff, Vanya & Maurer, Raimond & Mitchell, Olivia S., 2023. "Do required minimum distribution 401(k) rules matter, and for whom? Insights from a lifecycle model," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Ragnar Enger Juelsrud & Ella Getz Wold, 2023. "The importance of unemployment risk for individual savings," Working Papers 06/2023, Centre for Household Finance and Macroeconomic Research (HOFIMAR), BI Norwegian Business School.
    3. Carvajal, Andrés & Zhou, Hang, 2024. "Idiosyncratic risk and the equity premium," Journal of Mathematical Economics, Elsevier, vol. 113(C).
    4. d'Astous, Philippe & Shore, Stephen H., 2024. "Human capital risk and portfolio choices: Evidence from university admission discontinuities," Journal of Financial Economics, Elsevier, vol. 154(C).
    5. Yan Liu & Quaner Wen & Abbas Ali Chandio & Long Chen & Lu Gan, 2022. "Investment Risk Analysis for Green and Sustainable Planning of Rural Family: A Case Study of Tibetan Region," Sustainability, MDPI, vol. 14(19), pages 1-19, September.
    6. Bagliano, Fabio C. & Fugazza, Carolina & Nicodano, Giovanna, 2024. "Life-cycle risk-taking with personal disaster risk," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 378-396.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:35:y:2022:i:9:p:4016-4054.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.