Portfolio Choice in the Presence of Background Risk

John Heaton and Deborah Lucas

Economic Journal, 2000, vol. 110, issue 460, 1-26

Abstract: In this paper, we focus on how the presence of background risks--from sources such as labour and entrepreneurial income--influences portfolio allocations. This interaction is explored in a theoretical model that is calibrated using cross-sectional data from a variety of sources. The model is shown to be consistent with some but not all aspects of cross-sectional observations of portfolio holdings. The paper also provides a survey of the extensive theoretical and empirical literature on portfolio choice.

Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:econjl:v:110:y:2000:i:460:p:1-26

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