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Household Portfolio Accounting

Author

Listed:
  • Sewon Hur

    (University of Pittsburgh)

  • Christopher Telmer

    (Carnegie Mellon University)

  • Siqiang Yang

    (University of Pittsburgh)

Abstract

American households vary largely in their portfolio composition of safe and risky assets, defined as stocks, real estate, and non-corporate business. We consider a standard life-cycle model with labor income risk and portfolio choice (Cocco et al. 2005), augmented with a savings wedge that lowers the return on saving and a risky wedge that lowers the relative return on risky assets. Using the SCF (1989–2016), we compute household-level wedges that rationalize the data, in the spirit of Chari et al.(2007). This paper has three main contributions. First, we use the wedges to guide plausible frictions that researchers should consider. Second, we analyze the extent to which household characteristics can account for the wedges. For example, we find that risky wedges are decreasing in age and education, smaller for self-employed households and home owners, and larger for male and black households. Finally, in a hypothetical exercise of reducing the wedges, as in Hsieh and Klenow (2009), we investigate the changes to wealth levels and wealth inequality in the U.S.

Suggested Citation

  • Sewon Hur & Christopher Telmer & Siqiang Yang, 2018. "Household Portfolio Accounting," 2018 Meeting Papers 1298, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1298
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    References listed on IDEAS

    as
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    2. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
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    4. Fatih Guvenen, 2009. "A Parsimonious Macroeconomic Model for Asset Pricing," Econometrica, Econometric Society, vol. 77(6), pages 1711-1750, November.
    5. Khorunzhina, Natalia, 2013. "Structural estimation of stock market participation costs," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2928-2942.
    6. Monica Paiella, 2007. "The Forgone Gains of Incomplete Portfolios," The Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1623-1646, 2007 13.
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