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Fitting parsimonious household- portfolio models to data

Author

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  • Hubar, Sylwia
  • Koulovatianos, Christos
  • Li, Jian

Abstract

US data and new stockholding data from fifteen European countries and China exhibit a common pattern: stockholding shares increase in household income and wealth. Yet, there is a multitude of numbers to match through models. Using a single utility function across households (parsimony), we suggest a strategy for fitting stockholding numbers, while replicating that saving rates increase in wealth, too. The key is introducing subsistence consumption to an Epstein-Zin-Weil utility function, creating endogenous risk-aversion differences across rich and poor. A closed-form solution for the model with insurable labor-income risk serves as calibration guide for numerical simulations with uninsurable labor-income risk.

Suggested Citation

  • Hubar, Sylwia & Koulovatianos, Christos & Li, Jian, 2014. "Fitting parsimonious household- portfolio models to data," CFS Working Paper Series 489, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:489
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    References listed on IDEAS

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    1. Allen J. Moore, 2004. "All in the family," Nature, Nature, vol. 429(6991), pages 517-518, June.
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    Cited by:

    1. Koulovatianos, Christos & Schröder, Carsten & Schmidt, Ulrich, 2019. "Do demographics prevent consumption aggregates from reflecting micro-level preferences?," European Economic Review, Elsevier, vol. 111(C), pages 166-190.

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      Keywords

      Epstein-Zin-Weil recursive preferences; subsistence consumption; household-portfolio shares; business equity; wealth inequality;
      All these keywords.

      JEL classification:

      • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
      • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
      • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
      • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
      • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
      • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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