Reference : The role of labor-income risk in household risk-taking
Scientific journals : Article
Business & economic sciences : Finance
The role of labor-income risk in household risk-taking
Hubar, Sylwia [Natixis > Economic Research]
Koulovatianos, Christos mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Finance (DF) >]
Li, Jian [Zhejiang Gongshang University, > School of Finance and International Business School]
European Economic Review
Yes (verified by ORBilu)
[en] Background risk ; Household-portfolio shares ; Business equity ; Subsistence consumption ; Wealth inequality
[en] In fifteen European countries, China, and the US, stocks and business equity as a share of total household assets are represented by an increasing and convex function of income/wealth. A parsimonious model fitted to the data shows why background labor-income risk can explain much of this risk-taking pattern. Uncontrollable labor-income risk stresses middle-income households more because labor income is a larger fraction of their total lifetime resources compared with the rich. In response, middle-income households reduce (controllable) financial risk. Richer households, having less pressure, can afford more risk-taking. The poor take low risk because they avoid jeopardizing their subsistence consumption.

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