Life-cycle risk-taking with personal disaster risk

Fabio Bagliano, Carolina Fugazza and Giovanna Nicodano

International Review of Economics & Finance, 2024, vol. 89, issue PB, 378-396

Abstract: Inspired by a growing body of empirical work, this paper models a non-linear labor income process allowing for a personal disaster, such as long-term unemployment or disability, during working years. Such a disaster entails an uncertain but potentially large permanent shock to earnings. Personal disaster risk allows to match moderate risk-taking of young investors and a flat investment profile in age, observed in the United States, when the calibration of both the disaster probability and the expected permanent loss in the disaster state is conservative.

Keywords: Life-cycle portfolio choice; Disaster risk; Beta distribution; Non-linear income process; Unemployment risk; Disability risk (search for similar items in EconPapers)
JEL-codes: D15 E21 G11 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056023004057
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Life-Cycle Risk-Taking with Personal Disaster Risk (2021)
Working Paper: Life-cycle risk-taking with personal disaster risk (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:378-396

DOI: 10.1016/j.iref.2023.10.035

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().