English, Article, Journal or magazine article edition: (UBS Pensions series 20) Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence Francisco Gomes; Alex Michaelides

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Bookmark: http://trove.nla.gov.au/version/45276
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • (UBS Pensions series 20) Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence
Author
  • Francisco Gomes
  • Alex Michaelides
Physical Description
  • preprint
Notes
  • We show that a life-cycle model with realistically calibrated uninsurable labor income risk and moderate risk aversion can simultaneously match stock market participation rates and asset allocation decisions conditional on participation. The key ingredients of the model are Epstein-Zin preferences, a fixed stock market entry cost, and moderate heterogeneity in risk aversion. Households with low risk aversion smooth earnings shocks with a small buffer stock of assets and consequently most of them (optimally) never invest in equities. Therefore, the marginal stockholders are (endogenously) more risk-averse and as a result they do not invest their portfolios fully in stocks.
  • RePEc:fmg:fmgdps:dp474
Language
  • English
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