and (2002)
BibTeX
@MISC{Gomes02and,
author = {Francisco Gomes and Alexander Michaelides and Orazio Attanasio and Ravi Bansal and Joao Cocco and Steve Davis and Bill Dupor and Lorenzo Forni and Joao Gomes and Luigi Guiso and Michael Haliassos and Burton Hollifield and Deborah Lucas and Pascal Maenhout and Monica Paiella and Ken Singleton and Nicholas Souleles and Annette Vissing-jorgensen and Tan Wang and Paul Willen and Amir Yaron and Harold Zhang and Seminar Participants},
title = {and},
year = {2002}
}
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Abstract
We study life-cycle asset allocation in the presence of liquidity constraints and undiversifiable labor income risk. The model includes three assets (cash, long-term government bonds and stocks) and takes into account for the life-cycle profile of housing expenditures. We find that a small fixed cost can rationalize the participation rates observed in the data, for very low values of risk aversion (less than 2). Somewhat counterintuitively, participation rates are an increasing function of risk aversion. We show that this arises from the link between risk aversion and prudence, which in turn implies that explanations for the participation puzzle based on the role of background risk (consumption risk, labor income risk or housing risk), are unlikely to succeed in exaplining stock market non-participation. With CRRA preferences it is hard to generate significant non-participation, given the link
