Household Finance: Education, Permanent Income and Portfolio Choice

44 Pages Posted: 20 Sep 2013

See all articles by Russell Cooper

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Guozhong Zhu

University of Alberta - Alberta School of Business

Date Written: September 2013

Abstract

This paper studies household financial choices: why are these decisions dependent on the education level of the household? A life cycle model is constructed to understand a rich set of facts about decisions of households with different levels of education attainment regarding stock market participation, the stock share in wealth, the stock adjustment rate and wealth-income ratio. Model parameters, including preferences, the cost of stock market participation and portfolio adjustment costs, are estimated to match the financial decisions of different education groups. Based on the estimated model, education matters through two channels: the mean of income and the discount factor.

Suggested Citation

Cooper, Russell W. and Zhu, Guozhong, Household Finance: Education, Permanent Income and Portfolio Choice (September 2013). NBER Working Paper No. w19455. Available at SSRN: https://ssrn.com/abstract=2328501

Russell W. Cooper (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guozhong Zhu

University of Alberta - Alberta School of Business ( email )

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