Essays On Portfolio Choice And Health Over The Life Cycle
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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.
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 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 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 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 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.
Asset Market Participation And Portfolio Choice Over The Life Cycle
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Author : Andreas Fagereng
language : en
Publisher:
Release Date : 2013
Asset Market Participation And Portfolio Choice Over The Life Cycle written by Andreas Fagereng and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Portfolio management categories.
We study the life cycle of portfolio allocation following for 15 years a large random sample of Norwegian households using error-free data on all components of households' investments drawn from the Tax Registry. Both, participation in the stock market and the portfolio share in stocks, have important life cycle patterns. Participation is limited at all ages but follows a hump-shaped profile which peaks around retirement; the share invested in stocks among the participants is high and flat for the young but investors start reducing it as retirement comes into sight. Our data suggest a double adjustment as people age: a rebalancing of the portfolio away from stocks as they approach retirement, and stock market exit after retirement. Existing calibrated life cycle models can account for the first behavior but not the second. We show that incorporating in these models a reasonable per period participation cost can generate limited participation among the young but not enough exit from the stock market among the elderly. Adding also a small probability of a large loss when investing in stocks, produces a joint pattern of participation and of the risky asset share that is similar to the one observed in the data. A structural estimation of the relevant parameters of the model reveals that the parameter combination that fits the data best is one with a relatively large risk aversion, small participation cost and a yearly large loss probability of around 1.3 percent.
Portfolio Allocation With Medical Expenditure Risk A Life Cycle Model And Machine Learning Analysis
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Author : You Du
language : en
Publisher:
Release Date : 2023
Portfolio Allocation With Medical Expenditure Risk A Life Cycle Model And Machine Learning Analysis 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 2023 with categories.
This paper explores how the medical expenditure risk affects the households' portfolio choice across health status theoretically in a life cycle model and empirically using machine learning methods. Medical expenditure risk, as a background risk, can relocate households' financial decisions. A higher medical expenditure risk leads to a larger fluctuation and more uncertainty in households' consumption and therefore, utility. As a result, risk-free assets become more preferable. Our machine learning analysis shows evidence consistent with the theoretical life cycle model predictions. In particular, households with better health status tend to hold more stocks and conditional on being in good health status, households are willing to invest more in safe assets if they face a higher medical expenditure risk.
Portfolio Choice Over The Life Cycle In The Presence Of Trickle Down Labor Income
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Author : Luca Benzoni
language : en
Publisher:
Release Date : 2005
Portfolio Choice Over The Life Cycle In The Presence Of Trickle Down Labor Income written by Luca Benzoni and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with Investments categories.
Empirical evidence shows that changes in aggregate labor income and stock market returns exhibit only weak correlation at short horizons. As we document below, however, this correlation increases substantially at longer horizons, which provides at least suggestive evidence that stock returns and labor income are cointegrated. In this paper, we investigate the implications of such a cointegrated relation for life-cycle optimal portfolio and consumption decisions of an agent whose non-tradable labor income faces permanent and temporary idiosyncratic shocks. We find that, under economically plausible calibrations, the optimal portfolio choice for the young investor is to take a substantial ¿Xem short} position in the risky portfolio, in spite of the large risk premium associated with it. Intuitively, this occurs because the cointegration effect makes the present value of future labor income flows stock-like' for the young agent. However, for older agents who have shorter times-to-retirement, the cointegration effect does not have sufficient time to act, and the remaining human capital becomes more bond-like.' Together, these effects create a hump-shaped optimal portfolio decision for the agent over the life cycle, consistent with empirical observation
Life Cycle Portfolio Choice With Liquid And Illiquid Assets
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Author : Claudio Campanale
language : en
Publisher:
Release Date : 2015
Life Cycle Portfolio Choice With Liquid And Illiquid Assets 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 2015 with Liquidity (Economics) categories.
Traditionally, quantitative models that have studied households' portfolio choices have focused exclusively on the different risk properties of alternative financial assets. We introduce differences in liquidity across assets in the standard life-cycle model of portfolio choice. More precisely, in our model, stocks are subject to transaction costs, as considered in recent macro literature. We show that, when these costs are calibrated to match the observed infrequency of households' trading, the model is able to generate patterns of portfolio stock allocation over age and wealth that are constant or moderately increasing, thus more in line with the existing empirical evidence.