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Life Cycle Portfolio Choice: A Swiss Perspective

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  • Florian Zainhofer
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    Abstract

    We use panel data from the Swiss Labor Force Survey to estimate age-earnings profiles as well as transitory and permanent income shock variances for investor groups distinguished by gender, education and activity rate. Estimation results are then used to stylize several different Swiss investor types. Finally, we determine optimal life cycle consumption, savings and risky asset share for these investor types using a recent computational life cycle model of portfolio choice suggested by Cocco et al. (2005). We are particularly interested in the allocation differences between investor types and their normative implications.

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    File URL: http://www.sjes.ch/papers/2007-II-4.pdf
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    Bibliographic Info

    Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

    Volume (Year): 143 (2007)
    Issue (Month): II (June)
    Pages: 187-238

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    Handle: RePEc:ses:arsjes:2007-ii-4

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    Postal: c/o SNB/BNS, Börsenstrasse 15, PO Box 2800, CH-8022 Zürich
    Phone: +41 (0)44 631 32 34
    Fax: +41 (0)44 631 39 01
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    Web page: http://www.sjes.ch
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    Related research

    Keywords: Personal finance; financial planning; life cycle model; portfolio choice;

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    1. Thomas E. MaCurdy, 1981. "Multiple Time-Serie3 Models Applied to Panel Data," NBER Working Papers 0646, National Bureau of Economic Research, Inc.
    2. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
    3. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, vol. 47(2), pages 437-54, March.
    4. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
    5. Lillard, Lee A, 1977. "Inequality: Earnings vs. Human Wealth," American Economic Review, American Economic Association, vol. 67(2), pages 42-53, March.
    6. Alfonso Sousa-Poza & Fred Henneberger, 2000. "Wage data collected by telephone interviews: an empirical analysis of the item nonresponse problem and its implications for the estimation of wage functions," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 136(I), pages 79-98, March.
    7. Gomes, Francisco J & Michaelides, Alexander, 2005. "Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence," CEPR Discussion Papers 4853, C.E.P.R. Discussion Papers.
    8. Queisser, Monika & Vittas, Dimitri, 2000. "The Swiss multi-pillar pension system : triumph of common sense?," Policy Research Working Paper Series 2416, The World Bank.
    9. John Y. Campbell & Joao F. Cocco & Francisco J. Gomes & Pascala J. Maenhout, 2000. "Investing Retirement Wealth? A Life-Cycle Model," Harvard Institute of Economic Research Working Papers 1896, Harvard - Institute of Economic Research.
    10. Christopher D. Carroll & Andrew A. Samwick, 1995. "The Nature of Precautionary Wealth," NBER Working Papers 5193, National Bureau of Economic Research, Inc.
    11. Luca Benzoni & Pierre Collin-Dufresne & Robert S. Goldstein, 2005. "Portfolio Choice over the Life-Cycle in the Presence of 'Trickle Down' Labor Income," NBER Working Papers 11247, National Bureau of Economic Research, Inc.
    12. Steven J. Davis & Felix Kubler & Paul Willen, 2005. "Borrowing costs and the demand for equity over the life cycle," Working Papers 05-7, Federal Reserve Bank of Boston.
    13. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
    14. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
    15. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
    16. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
    17. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1994. "Precautionary Saving and Social Insurance," NBER Working Papers 4884, National Bureau of Economic Research, Inc.
    18. Lee A. Lillard & Robert J. Willis, 1976. "Dynamic Aspects of Earnings Mobility," NBER Working Papers 0150, National Bureau of Economic Research, Inc.
    19. Cornelia Luchsinger & Rafael Lalive & Jörg Wild, 2003. "Do Wages Rise with Job Seniority? The Swiss Case," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(II), pages 207-229, June.
    20. Michael Gerfin, 1994. "Income Distribution, Income Inequality and Life Cycle Effects - A Nonparametric Analysis for Switzerland," Diskussionsschriften dp9405, Universitaet Bern, Departement Volkswirtschaft.
    21. Alejandra Cattaneo & Rainer Winkelmann, 2005. "Earnings Differentials between German and French speakers in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 141(II), pages 191-212, June.
    22. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
    23. Michael Haliassos and Alexander Michaelides, 2001. "Calibration and Computation of Household Portfolio Models," Computing in Economics and Finance 2001 194, Society for Computational Economics.
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