Posted: 22 Jan 2001
In this paper, we focus on how the presence of background risks - from sources such as labour and entrepreneurial income - influences portfolio allocations. This interaction is explored in a theoretical model that is calibrated using cross-sectional data from a variety of sources. The model is shown to be consistent with some but not all aspects of cross-sectional observations of portfolio holdings. The paper also provides a survey of the extensive theoretical and empirical literature on portfolio choice.
JEL Classification: G19, F31
Suggested Citation: Suggested Citation
Lucas, Deborah J. and Heaton, John, Portfolio Choice in the Presence of Background Risk. Economic Journal, Vol. 110, P. 460, January 2000. Available at SSRN: https://ssrn.com/abstract=233418