Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/86897 
Year of Publication: 
2011
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 11-038/2/DSF13
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model of a closed economy. Retirement flexibility is often seen as a hedge against capital market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened - and under some conditions even turned around - if not only capital market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure.
Subjects: 
portfolio choice
retirement (in)flexibility
productivity and depreciation risk
intratemporal substitution
general equilibrium
JEL: 
E21
G11
J26
Document Type: 
Working Paper

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