Hedging Labor Income Risk
AbstractWe 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 statis- tically and economically significant. A household going from an industry with low wage volatility to one with high volatility will ceteris paribus decrease its portfolio share of risky assets by up to 35%, or USD 15,575.
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Bibliographic InfoPaper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 255.
Length: 52 pages
Date of creation: 01 Nov 2011
Date of revision:
investment decisions; hedging; human capital;
Find related papers by JEL classification:
- G00 - Financial Economics - - General - - - General
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
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