Saving rates and portfolio choice with subsistence consumption

Carolina Achury, Sylwia Hubar and Christos Koulovatianos

No 2011/06, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant 'keeping-up-with-the-Joneses' weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say.

Keywords: Elasticity of Intertemporal Substitution; Stone-Geary Preferences; Two-asset Portfolio; Household Portfolios; Wealth Inequality; Controlled Diffusion (search for similar items in EconPapers)
JEL-codes: D11 D14 D81 D91 E21 G11 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/57372/1/647478382.pdf (application/pdf)

Related works:
Journal Article: Saving Rates and Portfolio Choice with Subsistence Consumption (2012)
Working Paper: Saving Rates and Portfolio Choice with Subsistence Consumption (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:201106

Access Statistics for this paper

More papers in CFS Working Paper Series from Center for Financial Studies (CFS) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).