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Hedging labor income risk

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  • Betermier, Sebastien
  • Jansson, Thomas
  • Parlour, Christine
  • Walden, Johan
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    Abstract

    We use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and financial investment decisions. In particular, we relate changes in wage volatility to changes in the portfolio holdings for households that switched industries between 1999 and 2002. We find that households do adjust their portfolio holdings when switching jobs, which is consistent with the idea that households hedge their human capital risk in the stock market. The results are statistically and economically significant. A household going from an industry with low wage volatility to one with high volatility ceteris paribus decreases its portfolio share of risky assets by up to 35%, or $15,575.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 105 (2012)
    Issue (Month): 3 ()
    Pages: 622-639

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    Handle: RePEc:eee:jfinec:v:105:y:2012:i:3:p:622-639

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Investment decisions; Hedging; Human capital;

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    References

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    Cited by:
    1. Vanya Horneff & Raimond Maurer & Olivia S. Mitchell & Ralph Rogalla, 2013. "Optimal Life Cycle Portfolio Choice with Variable Annuities Offering Liquidity and Investment Downside Protection," Working Papers wp286, University of Michigan, Michigan Retirement Research Center.
    2. Jansson, Thomas, 2013. "Housing Choices and Labor Income Risk," Working Paper Series 272, Sveriges Riksbank (Central Bank of Sweden).
    3. Fabio C. Bagliano & Carolina Fugazza & Giovanna Nicodano, 2012. "Optimal life-cycle portfolios for heterogeneous workers," Working papers 012, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    4. Massimo Guidolin & Stuart Hyde, 2012. "Optimal Portfolios for Occupational Funds under Time-Varying Correlations in Bull and Bear Markets? Assessing the Ex-Post Economic Value," Working Papers 455, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Becker, Gideon & Dimpfl, Thomas, 2014. "Labor income risk and the reluctance of fouseholds to invest in risky financial assets: A panel data analysis," University of Tuebingen Working Papers in Economics and Finance 72, University of Tuebingen, Faculty of Economics and Social Sciences.
    6. Haliassos, Michalis & Jansson, Thomas & Karabulut, Yigitcan, 2014. "Incompatible European partners? Cultural predispositions and household financial behavior," SAFE Working Paper Series 58, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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