 Life-cycle portfolio choice: The role of heterogeneous under-diversificationJournal of Economic Dynamics and Control, 2009, vol. 33, issue 9, 1682-1698 Abstract: In life-cycle portfolio choice models it is standard to assume that all agents invest in a diversified stock market index. In contrast recent empirical evidence, summarized in Campbell [2006. Household finance. Journal of Finance 61, 1553-1604] suggests that households' financial portfolios are under-diversified and that there is substantial heterogeneity in diversification. In the present paper I examine the effects of heterogeneous under-diversification in a life-cycle portfolio choice model with uninsurable uncertain earnings and fixed per-period participation costs. The analysis of the model shows that realistically calibrated under-diversification gives an important contribution to the explanation of two key facts of households' portfolio allocation: the moderate stock market participation rate and the moderate stock share for participants. Keywords: Portfolio; choice; Life-cycle; Under-diversification; Retirement; wealth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:33:y:2009:i:9:p:1682-1698 Access Statistics for this article Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok More articles in Journal of Economic Dynamics and Control from Elsevier |
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