Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/57372 
Year of Publication: 
2011
Series/Report no.: 
CFS Working Paper No. 2011/06
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
Abstract: 
We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant 'keeping-up-with-the-Joneses' weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say.
Subjects: 
Elasticity of Intertemporal Substitution
Stone-Geary Preferences
Two-asset Portfolio
Household Portfolios
Wealth Inequality
Controlled Diffusion
JEL: 
G11
D91
E21
D81
D14
D11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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