Portfolio Choice and Precautionary Savings

Riccardo Calcagno () and Mariacristina Rossi
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Riccardo Calcagno: VU University Amsterdam and CeRP - Collegio Carlo Alberto, Turin

No 96, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: We study the effect on savings of an increase in the capital risk of the investment opportunities when the representative consumer is allowed to optimally choose her portfolio. Sandmo (1970) and Levhari and Srinivasan (1969) prove that individuals with high risk-aversion and time-separable, power utility increase their optimal savings when capital risk increases holding constant the expected return of the risky asset. We obtain the opposite effect when the consumer chooses her portfolio allocation optimally.

Pages: 14 pages
Date: 2010-03
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Related works:
Journal Article: Portfolio Choice and Precautionary Savings (2011)
Working Paper: Portfolio choice and precautionary savings (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:crp:wpaper:96

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