Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278486 
Year of Publication: 
2023
Series/Report no.: 
ECB Working Paper No. 2810
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Households face earnings risk which is non-normal and varies by age and over the income distribution. We show that allowing for these rich features of earnings dynamics, in the context of a structurally estimated life-cycle portfolio choice model, helps to rationalize the limited participation of households in the stock market and their low holdings of risky assets. Because households are subject to more background risk than previously considered, the estimated model implies a substantially lower coefficient of risk aversion. We also find renewed support for rule-of-thumb investment strategies under the model with the nonlinear earnings process.
Subjects: 
stock ownership
earnings risk
wealth accumulation
household finance
simulated method of moments
JEL: 
G11
G12
D14
D91
J24
H06
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6073-1
Document Type: 
Working Paper

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