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Norwegian

Income volatility and portfolio choices

Link to article:

[DOI]

Authors:

Chang, Yongsung, Jay H. Hong, Marios Karabarbounis, Yicheng Wang, Tao Zhang

Year:

2021

Reference:

Review of economic dynamics

Forthcoming

Summary

Based on administrative data from Statistics Norway, we find economically significant shifts in households’ financial portfolios around individual structural breaks in labor-income volatility. According to our estimates, when income risk doubles, households reduce their risky share of financial assets by 5 percentage points, thus tempering their overall risk exposure. We show that our estimated risky share response is consistent with a standard portfolio choice model augmented with idiosyncratic, time-varying income volatility.

Project:

Oppdragsgiver: NFR via ESOP
Oppdragsgivers prosjektnr.: 227072
Frisch prosjekt: 1182 - European Strains