Estimating heterogeneous costs of participation in the risky asset markets
AbstractThis paper develops and estimates a dynamic structural model of participation in the risky financial asset markets using household level panel data. We specify a simple economic model in order to capture the portfolio choice over the life cycle. We solve the model using numerical techniques. Then we embed the optimal solution into the statistical (auxiliary) model and estimate the structural parameters using Generalized Indirect Inference. This paper focuses on the estimation of the non proportional costs to participate in the risky asset markets. We consider heterogeneous costs among education groups. We find that participation costs in the risky asset markets are positive and significant. We also conclude that they vary a lot among education groups.
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Bibliographic InfoPaper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 2107.
Length: 56 pages
Date of creation: Jun 2007
Date of revision:
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Portfolio choice; dynamic programming; indirect inference;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-15 (All new papers)
- NEP-DGE-2007-12-15 (Dynamic General Equilibrium)
- NEP-EDU-2007-12-15 (Education)
- NEP-LAM-2007-12-15 (Central & South America)
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