Title: Household Portfolio Choice and Human Capital: The Importance of the Persistence of Labor Income Shocks
Abstract: Using longitudinal data from PSID, we show the positive relation between labor income and the equity share of financial wealth is stronger for those who have a higher persistence in shocks to permanent labor income. The results support the hypothesis that the cross sectional variation in persistence captures latent human capital effects on investment decisions, without which the variation in equity share appears to be attributed to variation in financial wealth. The predictions, which are supported empirically, are formulated with a simple model and a realistically calibrated life-cycle model of consumption and portfolio choice with non-tradeable human capital.
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
Indexed In: ['crossref']
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