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Income Risk, Ownership Dynamics, and Portfolio Decisions

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  • Bonaparte, Yosef
  • Korniotis, George
  • Kumar, Alok

Abstract

This study examines the stock market entry and exit decisions of U.S. households. We find that a significant portion of households enters or exits from their non-retirement investment accounts biennially. Cross-sectional and time-series tests indicate that income risk affects equity ownership turnover. A portfolio choice model with an income process extracted from survey data shows that idiosyncratic income shocks are more important for dynamic equity ownership decisions than aggregate stock market risk. The model yields realistic estimates for the coefficient of relative risk aversion (= 3.09) and the discount factor (= 0.97).

Suggested Citation

  • Bonaparte, Yosef & Korniotis, George & Kumar, Alok, 2020. "Income Risk, Ownership Dynamics, and Portfolio Decisions," CEPR Discussion Papers 15370, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:15370
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    More about this item

    Keywords

    Income risk; Market entry/exit; non-retirement accounts; ownership turnover; Trading Costs;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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