Abstract
The standard life-cycle models of household portfolio choice have difficulty generating a realistic age profile of risky share. These models not only imply a high risky share on average but also a steeply decreasing age profile, whereas the risky share is mildly increasing in the data. We introduce age-dependent, labor market uncertainty into an otherwise standard model. A great uncertainty in the labor market-high unemployment risk, frequent job turnovers, and an unknown career path-prevents young workers from taking too much risk in the financial market. As labor market uncertainty is resolved over time, workers start taking more risk in their financial portfolios.
| Original language | English |
|---|---|
| Pages (from-to) | 222-262 |
| Number of pages | 41 |
| Journal | American Economic Journal: Macroeconomics |
| Volume | 10 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2018 Apr 1 |
All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)
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Chang, Y., Hong, J. H., & Karabarbounis, M. (2018). Labor market uncertainty and portfolio choice puzzles. American Economic Journal: Macroeconomics, 10(2), 222-262. https://doi.org/10.1257/mac.20160207