Optimal portfolio choice for investors with industry-specific labor income risks

Hui-Ju Tsai and Yangru Wu ()

Finance Research Letters, 2014, vol. 11, issue 4, 429-436

Abstract: We study optimal investment decisions for long-horizon investors with industry-specific labor income risks. We find that in addition to the volatility of labor income growth, the correlation between labor income and risky asset returns is another important factor that affects the optimal portfolio decisions and may provide a plausible explanation for the mixed empirical evidence of the relationship between labor income risk and portfolio holdings. Depending on its relative covariance with stock and bond returns, labor income may help resolve or deepen the asset allocation puzzle.

Keywords: Portfolio choice; Labor income; Industries (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 J24 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:4:p:429-436

DOI: 10.1016/j.frl.2014.07.004

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