Abstract
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.
| Original language | English |
|---|---|
| Publication date | Jun 2018 |
| Number of pages | 45 |
| DOIs | |
| Publication status | Published - Jun 2018 |
| Event | 25th Annual Meeting of the German Finance Association. DGF 2018 - Universität Trier, Trier, Germany Duration: 21 Sept 2018 → 22 Sept 2018 Conference number: 25 https://www.uni-trier.de/index.php?id=65393 |
Conference
| Conference | 25th Annual Meeting of the German Finance Association. DGF 2018 |
|---|---|
| Number | 25 |
| Location | Universität Trier |
| Country/Territory | Germany |
| City | Trier |
| Period | 21/09/2018 → 22/09/2018 |
| Internet address |
Keywords
- Unemployment risk
- Business cycle
- Life-cycle model
- Portfolio planning
