The role of labor-income risk in household risk-taking

Sylwia Hubar, Christos Koulovatianos and Jian Li ()

European Economic Review, 2020, vol. 129, issue C

Abstract: In fifteen European countries, China, and the US, stocks and business equity as a share of total household assets are represented by an increasing and convex function of income/wealth. A parsimonious model fitted to the data shows why background labor-income risk can explain much of this risk-taking pattern. Uncontrollable labor-income risk stresses middle-income households more because labor income is a larger fraction of their total lifetime resources compared with the rich. In response, middle-income households reduce (controllable) financial risk. Richer households, having less pressure, can afford more risk-taking. The poor take low risk because they avoid jeopardizing their subsistence consumption.

Keywords: Background risk; Househod-portfolio shares; Business equity; Subsistence consumption; Wealth inequality (search for similar items in EconPapers)
JEL-codes: D11 D14 D81 D91 E21 G11 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: The role of labor-income risk in household risk-taking? (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:129:y:2020:i:c:s0014292120301537

DOI: 10.1016/j.euroecorev.2020.103522

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