Job Security and Personal Investment Portfolio

Global Journal of Business Research, Vol. 4, No. 1, pp. 17-27, 2010

11 Pages Posted: 1 Jul 2010

See all articles by Yan Alice Xie

Yan Alice Xie

University of Michigan at Dearborn

Howard Qi

Michigan Technological University; Independent

Date Written: 2010

Abstract

This paper incorporates human capital into the well-established portfolio theory by allowing for job security in personal portfolio choice. Our model predicts that young people hold more cash to hedge against risk associated with human capital (layoff risk). As people age, layoff risk decreases, and consequently, they invest in more risky assets – stocks in their portfolios. However, as people approach retirement, their human capital diminishes, and they become more risk averse. Hence, they hold more cash again. Our model provides a plausible explanation for the observed investment behavior of people who reveal humped shape stock holdings over the life cycle. Our results suggest that financial advisors should take into account different levels of job security when giving financial advice to different individuals.

Keywords: Job Security, Personal Portfolio, Human Capital

JEL Classification: G11, G23

Suggested Citation

Xie, Yan and Qi, Howard, Job Security and Personal Investment Portfolio (2010). Global Journal of Business Research, Vol. 4, No. 1, pp. 17-27, 2010, Available at SSRN: https://ssrn.com/abstract=1631857

Yan Xie (Contact Author)

University of Michigan at Dearborn ( email )

Dearborn, MI
United States

Howard Qi

Michigan Technological University ( email )

1400 Townsend Dr.
Houghton, MI 49931
United States

Independent ( email )

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