Fitting Parsimonious Household-Portfolio Models to Data

CFS Working Paper No. 489

101 Pages Posted: 13 Nov 2014

See all articles by Sylwia Hubar

Sylwia Hubar

Natixis

Christos Koulovatianos

Department of Finance, University of Luxembourg

Jian Li

Universite du Luxembourg

Date Written: November 11, 2014

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.

Keywords: Epstein-Zin-Weil recursive preferences, subsistence consumption, household-portfolio shares, business equity, wealth inequality

JEL Classification: G11, D91, D81, D14, D11, E21

Suggested Citation

Hubar, Sylwia and Koulovatianos, Christos and Li, Jian, Fitting Parsimonious Household-Portfolio Models to Data (November 11, 2014). CFS Working Paper No. 489, Available at SSRN: https://ssrn.com/abstract=2523360 or http://dx.doi.org/10.2139/ssrn.2523360

Sylwia Hubar

Natixis ( email )

France

Christos Koulovatianos (Contact Author)

Department of Finance, University of Luxembourg ( email )

4 Rue Albert Borschette
Luxembourg, L-1246
Luxembourg

Jian Li

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

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