Life-Cycle Risk-Taking with Personal Disaster Risk

Giovanna Nicodano, Fabio Bagliano and Carolina Fugazza

No 16234, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines households' self-insurance in financial markets when a rare personal disaster, such as disability or long-term unemployment, may occur during working years. Personal disaster risk alters lifetime ex-ante investment choices, even if most workers will not experience a disaster. Uncertainty about the size of human capital losses, which characterizes rare disasters, results in lower risk-taking at the beginning of working life, and is crucial in order to match the observed age profiles of US investors from 1992 to 2016.

Keywords: Disaster risk; Portfolio choice; Non-linear income process; Beta distribution (search for similar items in EconPapers)
JEL-codes: D15 E21 G11 (search for similar items in EconPapers)
Date: 2021-06
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Related works:
Journal Article: Life-cycle risk-taking with personal disaster risk (2024)
Working Paper: Life-cycle risk-taking with personal disaster risk (2021)
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