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Labor income and risky assets under market incompleteness: Evidence from Italian data

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  • Grande, Giuseppe
  • Ventura, Luigi

Abstract

Theory suggests that uninsurable income risk induces individuals to accumulate assets as a precautionary reserve of value. Most assets, however, bear rate of return risk, that can be diversified only if every asset is traded by a large number of individuals and arbitrage is frictionless. Using Italian micro-data, we find evidence of income and asset risks that affect consumption. Italian households are particularly well insured against illness but not against job losses. Moreover, we detect a positive, yet weak, effect of asset holding on the variability of consumption streams across households.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 26 (2002)
Issue (Month): 2-3 (March)
Pages: 597-620

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Handle: RePEc:eee:jbfina:v:26:y:2002:i:2-3:p:597-620

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Cited by:
  1. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004. "Money Demand in theEuroArea: Do National Differences Matter?," Macroeconomics, EconWPA 0404019, EconWPA, revised 24 Apr 2004.
  2. Becker, Sascha O. & Hoffmann, Mathias, 2010. "Equity fund ownership and the cross-regional diversification of household risk," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(1), pages 90-102, January.
  3. Pasquale Lucio Scandizzo, 2014. "The social rate of discount, climate change and real options," CEIS Research Paper 309, Tor Vergata University, CEIS, revised 18 Feb 2014.
  4. Joseph Eisenhauer & Luigi Ventura, 2003. "Survey measures of risk aversion and prudence," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 35(13), pages 1477-1484.

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