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Temperant portfolio choice and background risk: evidence from France

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Author Info

  • Luc Arrondel

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • Hector Calvo Pardo

    (School of Social Sciences - Economics division - University of Southampton)

  • Xisco Oliver

    (Universitat de les Illes Balears - Universitat de les Illes Balears)

Abstract

We explore empirically whether earnings uncertainty and borrowing constraints deter households from the stockmarket, consistent with the predictions of theoretical studies of portfolio choice in the presence of uninsurable earnings. Recent extensions highlight the importance of the correlation between earnings and financial risks. We use a self-assessed proxy for the correlation from the DELTA-TNS 2002 cross-sectional survey. While income risk does not deter from the stockmarket those households' reporting a negative correlation, it does for those who report a non-negative sign, consistent with economic theory predictions.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00588069.

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Date of creation: Jun 2007
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Handle: RePEc:hal:psewpa:halshs-00588069

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Related research

Keywords: portfolio choice ; background risk ; risk aversion ; prudence ; temperance;

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  1. Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, vol. 93(3), pages 948-964, June.
  2. Ignacio Palacios-Huerta, 2001. "The Human Capital of Stockholders and the International Diversification Puzzle," Working Papers 2001-13, Brown University, Department of Economics.
  3. Letendre, Marc-Andre & Smith, Gregor W., 2001. "Precautionary saving and portfolio allocation: DP by GMM," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 197-215, August.
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