Hedging Recessions

Publikation: KonferencebidragPaperForskningpeer review

Abstrakt

Traditional life-cycle models conclude that individuals should be fully invested in stocks when young -- in stark contrast to observed stock holdings -- and then gradually replace stocks with bonds as retirement is approaching. We show that a carefully specified and calibrated model of unemployment risk reduces the early-life stock holdings dramatically. The reduction is driven by the decline in current and expected future income caused by unemployment, the relatively high unemployment risk of young adults, and the business cycle variations in un- and reemployment probabilities that tend to deteriorate exactly when stocks perform poorly.
OriginalsprogEngelsk
Publikationsdatojun. 2018
Antal sider45
DOI
StatusUdgivet - jun. 2018
Begivenhed25th Annual Meeting of the German Finance Association. DGF 2018 - Universität Trier, Trier, Tyskland
Varighed: 21 sep. 201822 sep. 2018
Konferencens nummer: 25
https://www.uni-trier.de/index.php?id=65393

Konference

Konference25th Annual Meeting of the German Finance Association. DGF 2018
Nummer25
LokationUniversität Trier
LandTyskland
ByTrier
Periode21/09/201822/09/2018
Internetadresse

Emneord

  • Unemployment risk
  • Business cycle
  • Life-cycle model
  • Portfolio planning

Citationsformater