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Precautionary Portfolio Behavior from a Life-Cycle Perspective

  • Carol C. Bertaut

    (Board of Governors of the Federal Reserve System)

  • Michael Haliassos

    (University of Cyprus and IMOP Athens)

The literature on household asset accumulation draws a sharp distinction between "short-run" precautionary motives to buffer consumption from annual income shocks, and "long-run" life cycle considerations under income certainty. However, estimates of shock persistence imply considerable career uncertainty. We study long-run precautionary motives for life-cycle wealth accumulation and portfolios allowing for uncertain returns, incomes, and lifespan. We separate the effects of various factors on mean and median asset holdings, including education, risk aversion, household heterogeneity, bequests, impatience, variance and serial correlation of income shocks. Numerical solutions are compared with data from the 1992 Survey of Consumer Finances.

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Paper provided by EconWPA in its series Finance with number 9604001.

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Length: 39 pages
Date of creation: 19 Apr 1996
Date of revision:
Handle: RePEc:wpa:wuwpfi:9604001
Note: Type of Document - WordPerfect 5.1/5.2; prepared on IBM PC ; to print on HP; pages: 39; figures: request from author. Please note that the paper size is A4.
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  1. Elmendorf, Douglas W & Kimball, Miles S, 2000. "Taxation of Labor Income and the Demand for Risky Assets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 801-33, August.
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