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Labor income and risky assets under market incompleteness: Evidence from Italian data

  • Grande, Giuseppe
  • Ventura, Luigi

Theory suggests that uninsurable income risk induces individuals to accumulate assets as a precautionary reserve of value. Most assets, however, bear rate of return risk, that can be diversified only if every asset is traded by a large number of individuals and arbitrage is frictionless. Using Italian micro-data, we find evidence of income and asset risks that affect consumption. Italian households are particularly well insured against illness but not against job losses. Moreover, we detect a positive, yet weak, effect of asset holding on the variability of consumption streams across households.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 26 (2002)
Issue (Month): 2-3 (March)
Pages: 597-620

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Handle: RePEc:eee:jbfina:v:26:y:2002:i:2-3:p:597-620
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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