Labor Market Uncertainty and Portfolio Choice Puzzles

Yongsung Chang, Jay H. Hong and Marios Karabarbounis

American Economic Journal: Macroeconomics, 2018, vol. 10, issue 2, 222-62

Abstract: The standard life-cycle models of household portfolio choice have difficulty generating a realistic age profile of risky share. These models not only imply a high risky share on average but also a steeply decreasing age profile, whereas the risky share is mildly increasing in the data. We introduce age-dependent, labor market uncertainty into an otherwise standard model. A great uncertainty in the labor market—high unemployment risk, frequent job turnovers, and an unknown career path—prevents young workers from taking too much risk in the financial market. As labor market uncertainty is resolved over time, workers start taking more risk in their financial portfolios.

JEL-codes: D14 D15 D81 G11 J31 J63 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/mac.20160207
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Labor-Market Uncertainty and Portfolio Choice Puzzles (2014)
Working Paper: Labor-Market Uncertainty and Portfolio Choice Puzzles (2014)
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