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 |
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All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)
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Labor market uncertainty and portfolio choice puzzles. / Chang, Yongsung; Hong, Jay H.; Karabarbounis, Marios.
In: American Economic Journal: Macroeconomics, Vol. 10, No. 2, 01.04.2018, p. 222-262.Research output: Contribution to journal › Article
TY - JOUR
T1 - Labor market uncertainty and portfolio choice puzzles
AU - Chang, Yongsung
AU - Hong, Jay H.
AU - Karabarbounis, Marios
PY - 2018/4/1
Y1 - 2018/4/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=85044738899&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85044738899&partnerID=8YFLogxK
U2 - 10.1257/mac.20160207
DO - 10.1257/mac.20160207
M3 - Article
AN - SCOPUS:85044738899
VL - 10
SP - 222
EP - 262
JO - American Economic Journal: Macroeconomics
JF - American Economic Journal: Macroeconomics
SN - 1945-7707
IS - 2
ER -