Essays on Consumption, Insurance, and Portfolio Choice Over the Life Cycle PDF Download

Author: Lorenz S. Schendel
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Tae-Young Pak
Publisher:
ISBN:
Category :
Languages : en
Pages : 302

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This dissertation considers household portfolio choice at the end of life-cycle. Three essays examine the importance of uncertainty about medical expenditure risk, cognitive aging, and subjective life horizon, and their role in explaining late-life savings decisions and portfolio allocation. Chapter 2 of the dissertation, entitled "Medical expenditure risk and precautionary saving: Evidence from Medicare Part D", tests the presence of precautionary saving motive to cope with medical expenditure risk. By examining Medicare Part D and it's association with household saving, I demonstrate that social insurance programs discourage private saving by reducing health-related uncertainty. Chapter 3 of the dissertation, entitled "Econometric analysis of cognitive abilities and portfolio choice", explores the role of cognitive aging in explaining a portfolio rebalancing towards safer assets at the end of life-cycle. In this essay, I argue that a gradual decrease in risky asset ownership at the end of life-cycle is in part driven by losing cognitive capabilities. I pay particular attention to testing whether such association is observed only on the extensive margin - that is, changes in ownership, or both risky asset ownership and reallocation across the intensive margin are affected. Causality is tested by exploiting exogenous variation in cognitive health, created by the introduction of Medicare Part D in 2006. Chapter 4 of the dissertation, entitled "Subjective life expectancy and portfolio choice: A household bargaining approach", examines collective decision-making when spouses have an incentive to bargain over portfolio allocation. This article starts with two well-known facts: (a) difference in life expectancy between husband and wife; and (b) age disparity in marriage. These two facts imply that females, on average, face 5 or 6 years longer retirement period to finance, and thus have more incentive to hold risky assets to achieve higher expected capital gains in the long-term. A difference in life expectancy then creates an incentive to bargain over how to allocate savings to risky and non-risky assets. The estimation results indeed show that more financial wealth is allocated to risky assets when a spouse with longer life expectancy has the "final say."

Author: Jialun Li
Publisher:
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Category :
Languages : en
Pages : 114

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Author: Joseph P. Lupton
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Category :
Languages : en
Pages : 394

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Author: Pu Li
Publisher:
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Category : Consumption (Economics)
Languages : en
Pages : 113

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Author: o F. Cocco
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Category :
Languages : en
Pages :

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This article solves a realistically calibrated life cycle model of consumption and portfolio choice with non-tradable labor income and borrowing constraints. Since labor income substitutes for riskless asset holdings, the optimal share invested in equities is roughly decreasing over life. We compute a measure of the importance of human capital for investment behavior. We find that ignoring labor income generates large utility costs, while the cost of ignoring only its risk is an order of magnitude smaller, except when we allow for a disastrous labor income shock. Moreover, we study the implications of introducing endogenous borrowing constraints in this incomplete-markets setting.

Author:
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ISBN: 9789056684624
Category :
Languages : en
Pages :

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Author: B. W. Ambrose
Publisher: Springer
ISBN: 0230608914
Category : Business & Economics
Languages : en
Pages : 293

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In response to growing interest in household finance, this collection of essays with a foreword by John Y. Campbell, studies household and consumer use of credit instruments. It shows how individual consumers and households utilize various credit alternatives in managing their consumption and savings and suggests areas for future research.

Author: Moshe A. Milevsky
Publisher:
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Category :
Languages : en
Pages : 31

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We study a class of portfolio choice problems that combine life insurance and labor income under constant relative risk aversion preferences (CRRA) preferences for consumption, within the optimal control framework pioneered by Merton (1969, 1971). Our model differs from previous research by (i) focusing attention on the correlation between human capital and financial capital, and (ii) modeling the utility of the family as opposed to separating consumption and bequest. From a technical point of view we show how the underlying Hamilton-Jacobi-Bellman (HJB) equation can be simplified using a similarity reduction technique, which then allows for the implementation of an efficient numerical solution. And, for reasonable financial economic parameter values, a closed-form approximation is derived which greatly simplifies the numerical calculations. A variety of example illustrating our numerical algorithm are also provided. Our main qualitative result is that households whose primary breadwinner's wages are negatively correlated with financial market returns, should optimally purchase more life insurance and can afford to take more risky positions with their financial portfolio. In addition, we find that the optimal face value of life insurance is remarkably insensitive to the family's risk aversion.

Author: Wei-Ting Pan
Publisher:
ISBN:
Category : Pensions
Languages : en
Pages : 296

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