Labor Income and Risky Assets under Market Incompleteness: Evidence from Italian Data

Giuseppe Grande and Luigi Ventura

No 399, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Theory suggests that uninsurable income risk induces individuals to accumulate assets as a precautionary reserve of value. Most assets, however, bear rate of return risk, that can be diversified only if every asset is traded by a large number of individuals and arbitrage is frictionless. Using Italian micro-data, we find evidence of income and asset risks that affect consumption. Italian households are particularly well insured against illness but not against job losses. Moreover, we detect a positive, yet weak, effect of asset holding on the variability of consumption streams across households.

Keywords: incomplete markets; consumption insurance; precautionary saving; financial markets; equity premium puzzle (search for similar items in EconPapers)
JEL-codes: D52 G12 G14 (search for similar items in EconPapers)
Date: 2001-03
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Citations: View citations in EconPapers (5)

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Journal Article: Labor income and risky assets under market incompleteness: Evidence from Italian data (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_399_01

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