Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management

Hugh Hoikwang Kim, Raimond Maurer and Olivia Mitchell

No 19732, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper incorporates two empirically-grounded insights into a dynamic life cycle portfolio choice model: the fact that investors forego the opportunity to accumulate job-specific skills when they spend time managing their own money, and the observation that efficiency in financial decision making varies with age. Our calibrated model demonstrates that both factors generate sensible portfolio inactivity patterns consistent with empirical evidence. We also analyze how people optimally choose between actively managing their assets versus delegating the task to financial advisors. Delegation proves valuable to both the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs as well as delegation in a life cycle setting.

JEL-codes: D1 D11 D12 D13 D14 D91 G11 J14 J22 J26 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-dge and nep-hrm
Note: AG LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Hugh Hoikwang Kim & Raimond Maurer & Olivia S. Mitchell, 2016. "Time is money: Rational life cycle inertia and the delegation of investment management," Journal of Financial Economics, vol 121(2), pages 427-447.

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Working Paper: Time is money: Life cycle rational inertia and delegation of investment management (2013)
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