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Precautionary Portfolio Behavior from a Life-Cycle Perspective

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  • Carol C. Bertaut

    (Board of Governors of the Federal Reserve System)

  • Michael Haliassos

    (University of Cyprus and IMOP Athens)

Abstract

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.

Suggested Citation

  • Carol C. Bertaut & Michael Haliassos, 1996. "Precautionary Portfolio Behavior from a Life-Cycle Perspective," Finance 9604001, University Library of Munich, Germany.
    • 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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    More about this item

    Keywords

    precautionary saving; income risk; CCAPM; life-cycle models;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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