Family Portfolio Choice over the Life Cycle
58 Pages Posted: 18 Nov 2021 Last revised: 23 Mar 2022
Date Written: March 22, 2022
Intra-household heterogeneity can quantitatively affect the predictions of life-cycle portfolio choice models. Empirically, double-income households, single-income households and singles have different exposures to background risks and differ in covariates affecting financial decisions, reacting differently to varying correlates of stock market participation and life-cycle asset allocation. Counterfactuals using a quantitative model emphasize the aggregation bias arising from treating double-income households as one unit. Intra-household heterogeneity in preference parameters like risk aversion and the presence (absence) of a second wage can alter substantially optimal stock market exposure with important implications for normative financial advice.
Keywords: Family Economics, Portfolio Choice over the Life Cycle, Background Risks, Intra-Household Heterogeneity.
JEL Classification: D14, D15, G11, G51
Suggested Citation: Suggested Citation