Collateralized Borrowing And Life-Cycle Portfolio Choice
Paul Willen and
Felix Kubler ()
No 578, 2006 Meeting Papers from Society for Economic Dynamics
We examine the effects of collateralized borrowing in a realistically parameterized life-cycle portfolio choice problem. We provide basic intuition in a two-period model and then solve a multi-period model computationally. Our analysis provides insights into life-cycle portfolio choice relevant for researchers in macroeconomics and finance. In particular, we show that standard models with unlimited borrowing at the riskless rate dramatically overstate the gains to holding equity when compared with collateral constrained models. Our results do not depend on the specification of the collateralized borrowing regime; the gains to trading equity remain relatively small even with the unrealistic assumption of unlimited leverage. We argue that our results strengthen the role of borrowing constraints in explaining the portfolio participation puzzle
Keywords: Portfolio Choice; Collateral (search for similar items in EconPapers)
JEL-codes: G11 E21 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Working Paper: Collateralized borrowing and life-cycle portfolio choice (2006)
Working Paper: Collateralized Borrowing and Life-Cycle Portfolio Choice (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:578
Access Statistics for this paper
More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().