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Age dependent portfolio selection

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  • Peter S. Yoo

Abstract

This paper addresses the issue of portfolio risk exposure as a function of age, and it focuses the debate by presenting detailed cross-sectional evidence about individual portfolios. It provides new empirical results that characterized the relationship between age and the risk exposure of individual portfolios. The evidence from cross-sectional data suggests that individuals do not follow behavior proscribed by economic theory or by Wall Street advisors, rather the results of this paper suggest that current body of theoretical literature does not adequately describe the behavior of individuals. It implies that a satisfactory model ofindividual behavior needs to focus on factors not linearly correlated with age.

Suggested Citation

  • Peter S. Yoo, 1994. "Age dependent portfolio selection," Working Papers 1994-003, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1994-003
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    References listed on IDEAS

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    1. Myung Jig Kim & Charles R. Nelson & Richard Startz, 1991. "Mean Reversion in Stock Prices? A Reappraisal of the Empirical Evidence," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 515-528.
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    3. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-163, May.
    4. Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
    5. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 427-449.
    6. Friend, Irwin & Blume, Marshall E, 1975. "The Demand for Risky Assets," American Economic Review, American Economic Association, vol. 65(5), pages 900-922, December.
    7. Morin, Roger A & Fernandez Suarez, Antonio, 1983. " Risk Aversion Revisited," Journal of Finance, American Finance Association, vol. 38(4), pages 1201-1216, September.
    8. Blume, Marshall E & Friend, Irwin, 1975. "The Asset Structure of Individual Portfolios and Some Implications for Utility Functions," Journal of Finance, American Finance Association, vol. 30(2), pages 585-603, May.
    9. Conrad, Jennifer & Kaul, Gautam, 1993. " Long-Term Market Overreaction or Biases in Computed Returns?," Journal of Finance, American Finance Association, vol. 48(1), pages 39-63, March.
    10. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
    11. King, M A & Dicks-Mireaux, L-D L, 1982. "Asset Holdings and the Life-Cycle," Economic Journal, Royal Economic Society, vol. 92(366), pages 247-267, June.
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    Cited by:

    1. James M. Poterba, 2004. "The impact of population aging on financial markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 163-216.
    2. Jamal, A. M. M. & Quayes, Shakil, 2004. "Demographic structure and stock prices," Economics Letters, Elsevier, vol. 84(2), pages 211-215, August.
    3. Döring, Diether & Buth, Rainer & Rosengart, Anja Helena, 2007. "Bedroht die künftige demographische Entwicklung die Vermögenswerte kapitalgedeckter Altersversorgungssysteme? Auswertung des Standes der internationalen Forschung," Arbeitspapiere 128, Hans-Böckler-Stiftung, Düsseldorf.
    4. Grable, John & Lytton, Ruth H., 1999. "Financial risk tolerance revisited: the development of a risk assessment instrument," Financial Services Review, Elsevier, vol. 8(3), pages 163-181.
    5. Summers, Barbara & Duxbury, Darren & Hudson, Robert & Keasey, Kevin, 2006. "As time goes by: An investigation of how asset allocation varies with investor age," Economics Letters, Elsevier, vol. 91(2), pages 210-214, May.
    6. Jang, Bong-Gyu & Lee, Ho-Seok, 2016. "Retirement with risk aversion change and borrowing constraints," Finance Research Letters, Elsevier, vol. 16(C), pages 112-124.
    7. Christophe Boucher, 2003. "Stock Market Valuation : the Role of the Macroeconomic Risk Premium," Finance 0305011, EconWPA.
    8. Andrew Ang & Angela Maddaloni, 2005. "Do Demographic Changes Affect Risk Premiums? Evidence from International Data," The Journal of Business, University of Chicago Press, vol. 78(1), pages 341-380, January.
    9. Zvi Bodie & Jérôme Detemple & Marcel Rindisbacher, 2009. "Life-Cycle Finance and the Design of Pension Plans," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 249-286, November.

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    Keywords

    Demography ; Saving and investment;

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