IDEAS home Printed from https://ideas.repec.org/a/oup/rasset/v9y2019i1p91-136..html
   My bibliography  Save this article

Consumption-Income Sensitivity and Portfolio Choice

Author

Listed:
  • Jawad M Addoum
  • Stefanos Delikouras
  • George M Korniotis

Abstract

Contrary to the predictions of traditional life-cycle models, household consumption is excessively sensitive to current income. Similarly, weak evidence of income hedging runs against standard portfolio theory. We link these two puzzles by modifying the theoretical framework of Viceira (2001) to study how consumption-income sensitivities generated by income in the utility function affect households’ portfolio choices. Empirically, we find that consumption-income sensitivities affect asset allocation through the income hedging channel. In particular, we show that the interaction between consumption-income sensitivity and the correlation of income growth to stock market returns is an important explanatory variable for households’ stock market holdings. Received October 20, 2016; editorial decision April 25, 2018 by Editor Wayne Ferson.

Suggested Citation

  • Jawad M Addoum & Stefanos Delikouras & George M Korniotis, 2019. "Consumption-Income Sensitivity and Portfolio Choice," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 9(1), pages 91-136.
    • Handle: RePEc:oup:rasset:v:9:y:2019:i:1:p:91-136.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rapstu/ray005
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rasset:v:9:y:2019:i:1:p:91-136.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/raps .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.