Essays In Life Cycle Portfolio Choice
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Essays On Portfolio Choice And Health Over The Life Cycle
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Author : You Du
language : en
Publisher:
Release Date : 2021
Essays On Portfolio Choice And Health Over The Life Cycle written by You Du and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with categories.
This dissertation examines the effect of health and its associated variables on households' consumption and portfolio choices over life cycle. The first two essays constitute my job market paper, which explains why the risky portfolio share rises in wealth from two health mechanisms: endogenous health investment and medical expenditure risk. The third chapter explores the effect of health and health risk on households' optimal consumption and portfolio decisions over life cycle. Chapter 1 titled ``PORTFOLIO CHOICE AND HEALTH ACROSS WEALTH: EMPIRICAL EVIDENCE" illustrates the empirical relationship between the portfolio puzzle and the heterogeneity of health variables across wealth. Classic financial theory suggests that under the assumption of no borrowing constraints and no mean-reverting stock returns, households should hold a constant risky portfolio in spite of their wealth, ages and life horizons (Samuelson (1969) and Merton (1969, 1971)). Yet data from the Survey of Consumers Finances (SCF) show that the risky portfolio share of financial assets increases in wealth. In the literature, this is called the ``portfolio puzzle". Meanwhile, various sources of data indicate that, compared with the non-wealthy households, the wealthy people have better health, longer life horizon, higher out of pocket medical spending with lower uncertainty, and more health care time. All these facts suggest a novel correlation between the portfolio puzzle and the heterogeneity of health variables across wealth and provide a robust empirical foundation to explain the portfolio puzzle from a health perspective. In Chapter 2 titled ``A LIFE CYCLE MODEL OF PORTFOLIO CHOICE AND HEALTH", a life cycle model with endogenous health investment and medical expenditure risk is proposed to capture the key empirical features in the first chapter. This calibrated model remarkably matches the U.S. data. I find that endogenous health investment is essential to explain the portfolio puzzle: if health is exogenous without investment, the model can only could deliver 7.2% of the risky share gap across wealth. Medical expenditure risk is less important and has a larger effect on the non-wealthy group. If I abstract from medical expenditure risk, the risky shares increase for both groups: 24% for the low wealth group and 5% for the wealthy group. This life cycle model provides new insights into how health affects households' financial behavior. Chapter 3 titled ``OPTIMAL CONSUMPTION AND PORTFOLIO CHOICE WITH HEALTH RISK" investigates the effect of health and health risk on households' optimal consumption and portfolio allocations over the life cycle. The simulation results show that consumption, savings in bonds, and savings in stocks all increase with health. The risky portfolio share, which is the ratio of savings in stocks to the total financial assets, demonstrates the same tendency for both health states over the life cycle: at the very young age, the risky portfolio share is relatively high. Starting from the middle age, this share falls significantly and keeps steady until the end of life. For most of the lifetime, the risky portfolio share is positively related with health. These results emphasize the importance of health and its associated risk in consumption and portfolio decisions.
Essays In Life Cycle Portfolio Choice
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Author : Yuxin Zhang
language : en
Publisher:
Release Date : 2017
Essays In Life Cycle Portfolio Choice written by Yuxin Zhang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
Essays On Portfolio Choice Over The Life Cycle
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Author : Lei Guo
language : en
Publisher:
Release Date : 2010
Essays On Portfolio Choice Over The Life Cycle written by Lei Guo and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
Essays On Portfolio Choice Over The Life Cycle
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Author : João Francisco Cocco
language : en
Publisher:
Release Date : 1999
Essays On Portfolio Choice Over The Life Cycle written by João Francisco Cocco and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with Finance, Personal categories.
Essays On Consumption Insurance And Portfolio Choice Over The Life Cycle
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Author : Lorenz S. Schendel
language : en
Publisher:
Release Date : 2014
Essays On Consumption Insurance And Portfolio Choice Over The Life Cycle written by Lorenz S. Schendel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
Essays On Optimal Carbon Pricing And Life Cycle Portfolio Choice
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Author : Christoph Hambel
language : en
Publisher:
Release Date : 2018
Essays On Optimal Carbon Pricing And Life Cycle Portfolio Choice written by Christoph Hambel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
Three Essays On Household Portfolio Choice
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Author : Tae-Young Pak
language : en
Publisher:
Release Date : 2016
Three Essays On Household Portfolio Choice written by Tae-Young Pak and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
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."
Essays On Dynamic Life Cycle Behavior With Heterogeneous Agents
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Author : Marios Karamparmpounis
language : en
Publisher:
Release Date : 2012
Essays On Dynamic Life Cycle Behavior With Heterogeneous Agents written by Marios Karamparmpounis and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012 with Income categories.
"In each of the following chapters I employ macroeconomic models in order to analyze the life cycle dynamics of working and savings decisions. Chapter 1 builds a model to analyze the optimal tax code if workers face differences in their labor supply elasticity. Standard public finance principles imply that workers with more elastic labor supply should face smaller tax distortions. The model quantitatively tests the potential of such an idea within a realistically calibrated life cycle model of labor supply with heterogeneous agents and incomplete markets. Heterogeneity in labor supply elasticity arises endogenously from differences in reservation wages. Older cohorts are much more responsive to wage changes than younger and especially middle aged cohorts. Both a shorter time horizon and a larger stock of savings account for this difference. Since the government does not have direct information on individual labor supply elasticity it uses these life cycle variables as informative moments. The optimal Ramsey tax policy decreases the average and marginal tax rates for agents older than 50 and more so the larger is the accumulated stock of savings. At the same time, the policy increases significantly the tax rates for middle aged workers. Finally, the optimal policy provides redistribution by decreasing tax rates of wealth-poor young workers. The policy encourages work effort by high elasticity groups while targets inelastic middle aged groups to raise revenues. As a result, total supply of labor increases by 2.98% and total capital by 5.37%. These effects translate into welfare gains of about 0.85% of annual consumption. Chapter 2 uses evidence from the Survey of Consumer Finances for the period 1998 in order to study the allocations of savings across safe and risky accounts. Safe assets include among others checking accounts, savings accounts, and money market accounts while stocks, brokerage accounts and trusts and annuities are considered risky. We document three empirical facts: i) The average household holds a low share of risky share. ii) The share of risky assets is disproportionately larger for richer households. iii) The share of risky assets increases in age. Chapter 3 examines how well a life cycle model with portfolio choice can capture the empirical trends analyzed in Chapter 2. The main finding is that standard portfolio-choice theory is hard to reconcile with the empirical facts. We show that a simple life-cycle model with Bayesian learning about earnings ability can bring the model closer to the data. Younger-wealth poor households whose incomes are skewed toward labor earnings face a large amount of risk. To hedge risk they invest in safe financial assets. As households grow older their willingness to invest in risky assets increases partially because their ability is gradually revealed and also because a larger amount of accumulated assets decreases their total risk exposure"--Leaves iv-v.
Preference For Wealth And Life Cycle Portfolio Choice
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Author : Claudio Campanale
language : en
Publisher:
Release Date : 2022
Preference For Wealth And Life Cycle Portfolio Choice written by Claudio Campanale and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2022 with categories.
Portfolio Choice With Internal Habit Formation
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Author : Francisco J. Gomes
language : en
Publisher:
Release Date : 2003
Portfolio Choice With Internal Habit Formation written by Francisco J. Gomes and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with Asset allocation categories.