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Portfolio choice and precautionary savings

Author

Listed:
  • Riccardo Calcagno

    (EM - EMLyon Business School, Collegio Carlo Alberto - UNITO - Università degli studi di Torino = University of Turin)

  • Mariacristina Rossi

    (UNITO - Università degli studi di Torino = University of Turin, Collegio Carlo Alberto - UNITO - Università degli studi di Torino = University of Turin)

Abstract

We study the effect on savings of an increase in the capital risk of the investment opportunities when the representative consumer is allowed to optimally choose her portfolio. Sandmo (1970) and Levhari and Srinivasan (1969) prove that individuals with high risk-aversion and time-separable, power utility increase their optimal savings when capital risk increases holding constant the expected return of the risky asset. We obtain the opposite effect when the consumer chooses her portfolio allocation optimally.

Suggested Citation

  • Riccardo Calcagno & Mariacristina Rossi, 2011. "Portfolio choice and precautionary savings," Post-Print hal-02312609, HAL.
    • Handle: RePEc:hal:journl:hal-02312609
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    Cited by:

    1. Mariacristina Rossi & Eva Sierminska, 2015. "Housing Decisions, Family Types and Gender: A Look across LIS Countries," SOEPpapers on Multidisciplinary Panel Data Research 815, DIW Berlin, The German Socio-Economic Panel (SOEP).

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G0 - Financial Economics - - General

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