Life-Cycle Portfolio Choice with Liquid and Illiquid Financial Assets
Traditionally quantitative models that have studied households' port- folio choice have focused exclusively on the different risk properties of alternative financial assets. In the present paper we take a different ap- proach and assume that assets also differ in their liquidity. We construct a model where agents face uninsurable idiosyncratic shocks to labor earn- ings. Earnings are paid in the form of a liquid asset that is needed to buy consumption goods. A second, risky asset, called stock is also available, however a fixed transaction cost is needed to buy or sell this asset. When the transaction cost is calibrated to match the observed infrequency in households' trading, the model generates patterns of portfolio stock allo- cations over age and wealth that are constant or moderately increasing, thus more in line with the empirical evidence compared to conventional models.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.carloalberto.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alexander Michaelides & Francisco J. Gomes, 2005. "Optimal life cycle asset allocation : understanding the empirical evidence," LSE Research Online Documents on Economics 193, London School of Economics and Political Science, LSE Library.
- David A. Love, 2010.
"The Effects of Marital Status and Children on Savings and Portfolio Choice,"
Review of Financial Studies,
Society for Financial Studies, vol. 23(1), pages 385-432, January.
- David Love, 2008. "The Effect of Marital Status and Children on Savings and Portfolio Choice," Department of Economics Working Papers 2008-13, Department of Economics, Williams College.
- Calvet, Laurent E. & Campbell, John Y. & Sodini, Paolo, 2006.
"Down or Out: Assessing The Welfare Costs of Household Investment Mistakes,"
Working Paper Series
195, Sveriges Riksbank (Central Bank of Sweden).
- Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 707-747, October.
- Sodini, Paolo & Calvet, Laurent E. & Campbell, John, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Scholarly Articles 3122488, Harvard University Department of Economics.
- Calvet, Laurent & Campbell, John Y. & Sodini, Paolo, 2006. "Down or out: assessing the welfare costs of household investment mistakes," Les Cahiers de Recherche 832, HEC Paris.
- Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," NBER Working Papers 12030, National Bureau of Economic Research, Inc.
- Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Harvard Institute of Economic Research Working Papers 2107, Harvard - Institute of Economic Research.
- Bilias, Yannis & Georgarakos, Dimitris & Haliassos, Michael, 2006.
"Portfolio inertia and stock market fluctuations,"
CFS Working Paper Series
2006/14, Center for Financial Studies (CFS).
- Markus K. Brunnermeier & Stefan Nagel, 2006. "Do Wealth Fluctuations Generate Time-varying Risk Aversion? Micro-Evidence on Individuals' Asset Allocation," NBER Working Papers 12809, National Bureau of Economic Research, Inc.
- Pierre-André Chiappori & Monica Paiella, 2008.
"Relative Risk Aversion Is Constant: Evidence from Panel Data,"
5_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
- Pierre‐André Chiappori & Monica Paiella, 2011. "Relative Risk Aversion Is Constant: Evidence From Panel Data," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1021-1052, December.
- Carol Bertaut & Martha Starr-McCluer, 2000. "Household portfolios in the United States," Finance and Economics Discussion Series 2000-26, Board of Governors of the Federal Reserve System (U.S.).
- Ahmet Akyol, 2000. "Optimal Monetary Policy in an Economy with Incomplete Markets and Idiosyncratic Shocks," Econometric Society World Congress 2000 Contributed Papers 0796, Econometric Society.
When requesting a correction, please mention this item's handle: RePEc:cca:wpaper:269. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Bert)
If references are entirely missing, you can add them using this form.