[en] Saving rates and household investment in stocks and business equity are all increasing in income and wealth. Introducing subsistence consumption to a common-across-households Epstein-Zin-Weil utility function is up to a quantitative explanation, in the context of stan- dardized parsimonious household-portfolio models with risky income. Closed forms in a sim- plified version of the model, with insurable labor-income risk and no liquidity constraints, reveal that if, (i) risky-asset returns are weakly correlated and, (ii) household resources are expected to grow over time, then poorer households can afford exiting subsistence concerns slowly by saving less and by taking less risk, while holding balanced portfolios.
Disciplines :
Finance
Author, co-author :
Hubar, Sylwia
Koulovatianos, Christos ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
Li, Jian ; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
Language :
English
Title :
Analytical Guidance for Fitting Parsimonious Household-Portfolio Models to Data