The role of labor-income risk in household risk-taking?

Arbeitspapier

In fifteen European countries, China, and the US, stocks and business equity as a share of total household assets are represented by an increasing and convex function of income/wealth. A parsimonious model fitted to the data shows why background labor-income risk can explain much of this risk-taking pattern. Uncontrollable labor-income risk stresses middle-income households more because labor income is a larger fraction of their total lifetime resources compared with the rich. In response, middle-income households reduce (controllable) financial risk. Richer households, having less pressure, can afford more risk-taking. The poor take low risk because they avoid jeopardizing their subsistence consumption.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper Series ; No. 640

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Criteria for Decision-Making under Risk and Uncertainty ; Household Saving; Personal Finance ; Consumer Economics: Theory ; Macroeconomics: Consumption; Saving; Wealth
• Subject: background risk ; household-portfolio shares ; business equity ; subsistence consumption ; wealth inequality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hubar, Sylwia ; Koulovatianos, Christos ; Li, Jian
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/222606
• URN: urn:nbn:de:hebis:30:3-534571
• Last update: 10.03.2025, 11:43 AM CET