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Income Volatility and Portfolio Choices

Author

Listed:
  • Yongsung Chang

    (University of Rochester)

  • Jay Hong

    (Seoul National University)

  • Marios Karabarbounis

    (Federal Reserve Bank of Richmond)

  • Yicheng Wang

    (University of Oslo)

Abstract

Using a detailed household-level financial and labor-market panel data from the Statistics Norway, we examine the effect of structural breaks in the labor market on household's portfolio decisions. Individual structural breaks are identified by sharp changes in the volatility of labor income. We find a clear negative relationship between the volatility in the labor market and household's risky share. According to our estimates, a worker who experiences a 33\% increase in income volatility decreases the risky share by 4.4 percentage point.

Suggested Citation

  • Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang, 2018. "Income Volatility and Portfolio Choices," 2018 Meeting Papers 412, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:412
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    2. Marios Karabarbounis, 2020. "A Life-Cycle Model with Individual Volatility Dynamics," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 4, pages 159-171.
    3. Huang, Bin & Wang, Bin & Chen, Zixuan, 2024. "Individual investment adaptations to COVID-19 lockdowns," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
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    5. Park, Jin Seok & Suh, Donghyun, 2019. "Uncertainty and household portfolio choice : Evidence from South Korea," Economics Letters, Elsevier, vol. 180(C), pages 21-24.
    6. Botosaru, Irene, 2023. "Time-varying unobserved heterogeneity in earnings shocks," Journal of Econometrics, Elsevier, vol. 235(2), pages 1378-1393.

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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G1 - Financial Economics - - General Financial Markets
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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