Life-Cycle Portfolios, Unemployment and Human Capital Loss

Fabio Bagliano, Carolina Fugazza and Giovanna Nicodano

No 577, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: The recent Great Recession highlighted that long-term unemployment spells may entail persistent losses in workers’ human capital. This paper extends the life-cycle model of savings and portfolio choice with unemployment risk, by allowing the possibility of permanent reductions in expected earnings following long-term unemployment. The optimal risky portfolio share becomes flat in age due to the resolution of uncertainty about future returns to human capital that occurs as the worker ages. This may help explaining the observed relatively flat, or only moderately increasing, risky share of investors during working life, and have important consequences for the design of optimal life-cycle portfolios by investment funds. D15, E21, G11

Keywords: life-cycle portfolio choice; unemployment risk; human capital depreciation; age rule. (search for similar items in EconPapers)
JEL-codes: I20 J13 J15 (search for similar items in EconPapers)
Pages: pages 38
Date: 2018
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Related works:
Journal Article: Life-cycle portfolios, unemployment and human capital loss (2019)
Working Paper: Life-Cycle Portfolios, Unemployment and Human Capital Loss (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:577

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