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Income Volatility and Portfolio Choices

Yongsung Chang (), Jay Hong, Marios Karabarbounis and Yicheng Wang
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Jay Hong: Seoul National University
Marios Karabarbounis: Federal Reserve Bank of Richmond
Yicheng Wang: University of Oslo

No 412, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: Using a detailed household-level financial and labor-market panel data from the Statistics Norway, we examine the effect of structural breaks in the labor market on household's portfolio decisions. Individual structural breaks are identified by sharp changes in the volatility of labor income. We find a clear negative relationship between the volatility in the labor market and household's risky share. According to our estimates, a worker who experiences a 33\% increase in income volatility decreases the risky share by 4.4 percentage point.

Date: 2018
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Working Paper: Income Volatility and Portfolio Choices (2020) Downloads
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