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The Impact Of Human Capital On Life Cycle Portfolio Choice
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Book Synopsis The Impact of Human Capital on Life-Cycle Portfolio Choice by : Ingmar Minderhoud
Download or read book The Impact of Human Capital on Life-Cycle Portfolio Choice written by Ingmar Minderhoud and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the impact of human capital on life-cycle portfolio choice using Dutch data. A distinction is made between the riskless view of human capital as having bond-like characteristics, and the risky conception of future wage income having stock-like properties. As in Benzoni, Collin-Dufresne, and Goldstein (2007) we study the welfare implications of portfolio choice when wage income and dividends are co-integrated. Based on Dutch data our analysis confirms the US results as the preferred equity allocation also shows a hump-shaped pattern.
Book Synopsis Portfolio Choice Over the Life-cycle in the Presence of 'trickle Down' Labor Income by : Luca Benzoni
Download or read book Portfolio Choice Over the Life-cycle in the Presence of 'trickle Down' Labor Income written by Luca Benzoni and published by . This book was released on 2005 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical evidence shows that changes in aggregate labor income and stock market returns exhibit only weak correlation at short horizons. As we document below, however, this correlation increases substantially at longer horizons, which provides at least suggestive evidence that stock returns and labor income are cointegrated. In this paper, we investigate the implications of such a cointegrated relation for life-cycle optimal portfolio and consumption decisions of an agent whose non-tradable labor income faces permanent and temporary idiosyncratic shocks. We find that, under economically plausible calibrations, the optimal portfolio choice for the young investor is to take a substantial ¿Xem short} position in the risky portfolio, in spite of the large risk premium associated with it. Intuitively, this occurs because the cointegration effect makes the present value of future labor income flows stock-like' for the young agent. However, for older agents who have shorter times-to-retirement, the cointegration effect does not have sufficient time to act, and the remaining human capital becomes more bond-like.' Together, these effects create a hump-shaped optimal portfolio decision for the agent over the life cycle, consistent with empirical observation
Book Synopsis Human Capital and Household Portfolio Choice by : Kyung Hwan Shim
Download or read book Human Capital and Household Portfolio Choice written by Kyung Hwan Shim and published by . This book was released on 2015 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using longitudinal data from PSID, we show the positive relation between labor income and the equity share of financial wealth is stronger for those who have a higher persistence in shocks to permanent labor income. The results support the hypothesis that the cross sectional variation in persistence captures latent human capital effects on investment decisions, without which the variation in equity share appears to be attributed to variation in financial wealth. The predictions, which are supported empirically, are formulated with a simple model and a realistically calibrated life-cycle model of consumption and portfolio choice with non-tradeable human capital.
Book Synopsis Portfolio Choice Over the Life-Cycle in the Presence of Cointegration Between Labor Income and Inflation by : Yang Zhou
Download or read book Portfolio Choice Over the Life-Cycle in the Presence of Cointegration Between Labor Income and Inflation written by Yang Zhou and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study portfolio choice for a finite-horizon investor whose labor income is cointegrated with inflation. We show that this long-run relationship has substantial impact on the riskiness of human capital and consequently on the optimal portfolio strategy. Because cointegration raises the long-run correlation between human capital and inflation, young investors' human capital effectively hedges inflation risk and crowds out the allocation to inflation-indexed bonds. However, the hedging power of human capital diminishes for older investors because of a weaker cointegration effect and less importance of human capital in total wealth. These effects together show that inflation-indexed bonds matter more for older investors than for young investors.
Book Synopsis Risk-Taking and Optimal Taxation with Nontradable Human Capital by : Zuliu Hu
Download or read book Risk-Taking and Optimal Taxation with Nontradable Human Capital written by Zuliu Hu and published by International Monetary Fund. This book was released on 1992-12-01 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: What are the effects of taxation on individual/entrepreneurs’ risk-taking behavior? This paper re-examines this old question in a continuous time life-cycle model. We demonstrate that the stream of uncertain income from human capital has systematic effects on demand for the risky physical capital asset. If labor supply is inelastic and real wages are known with certainty, then a labor income tax will reduce holdings of the risky physical asset. However, if there are random fluctuations in labor income, then the effect depends on the nature of interaction between wage risk and investment income risk. A labor income tax may actually raise demand for the risky capital asset if human capital risk and physical capital risk are positively correlated. The idiosyncratic risk and nontradability of human capital also have implications for optimal taxation. When the insurance and disincentive effects are jointly taken into account, a Pareto efficient tax structure implies a strictly positive tax rate.
Book Synopsis Human Capital Over the Life Cycle by : Catherine Sofer
Download or read book Human Capital Over the Life Cycle written by Catherine Sofer and published by Edward Elgar Publishing. This book was released on 2004-01-01 with total page 210 pages. Available in PDF, EPUB and Kindle. Book excerpt: . . . I am convinced that it should occupy a high position on the desk of policymakers. . . This book constitutes a good state-of-the-art study in this field and paves the way for further research in this direction. Marie-Claire Villeval, Economic Record This attractive publication is carried out as a clear attempt to gain access to a wider audience, relaxing formal and technical details, which makes the lecture easier. . . An international comparison of literature or educational and labour experiences is provided in every contribution in the book, helping to obtain a wider perspective of the problems tackled. Carmen García and Julio López, Education Economics This book makes a novel contribution to economics of education in several key respects. It highlights a broad number of crucial factors over the individual s life cycle that underlie inequalities in education and in the labour market. . . It is amazing how limited our knowledge is about these interactions despite their high priority in national as well as EU-level policy-making. This is a timely book concerned with topics of high policy relevance. Moreover, the authors have well succeeded in their attempt to write "in a style that makes this work accessible to a wider audience", using the editor s words. It is most important that academics as well as politicians are made aware of the considerable knowledge gaps that still prevail in our understanding of the role of education and training for the individual s success or failure in school and in working life. Rita Asplund, The Research Institute of the Finnish Economy (ETLA), Finland In the last decade, changes occurring in the demand for skills have produced significant effect on the functioning of labour markets in Europe and elsewhere. The challenge posed by a knowledge based society for sustained growth has been at the centre of the European strategy for employment and has important implications for the design of labour market policies. This book brings together a wide range of contributions written by leading experts on key issues such as: schooling systems, transition from school to work and lifelong learning, thereby providing an essential reference for both researchers and policymakers. Claudio Lucifora, Università Cattolica, Italy Human Capital Over the Life Cycle synthesises comparative research on the processes of human capital formation in the areas of education and training in Europe, in relation to the labour market. The book proposes that one of the most important challenges faced by Europe today is to understand the link between education and training on the one hand and economic and social inequality on the other. The authors focus the analysis on three main aspects of the links between education and social inequality: educational inequality, differences in access to labour markets and differences in lifelong earnings and training. Almost all the stages in the life cycle are tracked from early childhood to stages late in the working life: firstly the characteristics and effects of schooling systems, then the transitions from school to work and, finally, human capital and the working career. Academics and researchers of European studies, labour economics and the economics of education will all find this novel and analytically sound book of interest, as will sociologists and policymakers in Europe.
Book Synopsis Human Capital as an Asset Mix and Optimal Life-Cycle Portfolio by : Takao Kobayashi
Download or read book Human Capital as an Asset Mix and Optimal Life-Cycle Portfolio written by Takao Kobayashi and published by . This book was released on 2008 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines life-cycle optimal consumption and asset allocation in the presence of human capital. Labor income seems like a money market mutual fund whose balance in one or two years is predictable but a wide dispersion results after many years, reflecting fluctuations in economic conditions. We use the martingale method to derive an analytical solution, finding that Merton's well-known constant-mix strategy is still true after incorporating human capital from the perspective of total wealth management. Moreover, the proportion in risky assets implicit in the agent's human capital is the main factor determining the optimal investment strategy. The numerical examples suggest that young investors should short stocks because their human capital has large market exposure. As they age, however, their human capital becomes bond-like, and thus they have to hold stocks to achieve optimal overall risk exposure.
Book Synopsis Life-Cycle Asset Allocation and Unemployment Risk by : Fabio C. Bagliano
Download or read book Life-Cycle Asset Allocation and Unemployment Risk written by Fabio C. Bagliano and published by . This book was released on 2016 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we extend the traditional life cycle model of saving and portfolio choice to allow for possible long-term unemployment spells to have permanent effects on subsequent labor income prospects. The risk of losing future labor income could imply strong human capital erosion for the investor at any age, dampening the incentive to invest in risky stocks. The resulting optimal portfolio share invested in stocks may be relatively flat in age, more in line with the available evidence and contrary to the predictions of traditional life-cycle models.
Book Synopsis Financial Investment and Human Capital During Life Cycle by : Anastasios Anastasopoulos
Download or read book Financial Investment and Human Capital During Life Cycle written by Anastasios Anastasopoulos and published by . This book was released on 2018 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the problem of an agent who invests in financial assets, works and/or accumulates human capital, and retires at the end of time horizon. His/her initial endowments consist of an amount of liquid assets (maybe because of inheritance) and a number of units of human capital.Human capital is measured in efficiency units, as in the theory of growth. By contrast to the theory of growth, efficiency units increase as the result of training and education. Training is a costly activity; in addition to paying educational costs, the agent devotes part of his/her human capital exclusively to education and, thus, he/she can devote less time to earn labour income.The methodology similar to the Kreps-Proteus (KP) and Epstein-Zin (EZ) preferences. The certainty equivalent of life-time utility is evaluated by means of the negative exponential function. In addition, the wealth at the beginning of a period is an anchor point which determines the attitude to risk for that period. The attitude to risk and the utility of wealth evolve over time under the impact of past experiences and the anticipation of future events.Some of the main results are: (i) Optimal policies are linear functions of wealth: the marginal propensities to consume and to invest in financial assets are determined recursively and they are independent of the level of wealth of each period. (ii) The Certainty equivalent (CE) of the portfolio's risk premium is the sum of the CE of the risk premia attached to financial assets and human capital, both expressed per unit of initial wealth of a period. (iii) The attitude to risk is characterized by an intrinsic attitude which is unchanged during the lifetime of the individual. This attitude is modified depending on whether the agent faces dynamic or timeless choices. In the case of dynamic choices, the intrinsic measure is modified by the realization of random events related to past choices. In timeless choices, the atemporal measure allows the agent to evaluate future anticipations under the experiences of the past. (iv) On economic considerations alone, the choice of educational plan at the beginning of the life cycle is either zero, or the maximum possible. It is independent of the measure of risk aversion and depends on other (not specified) personal preference and social conditions.
Book Synopsis Stock Market Investment by : Katrik B. Athreya
Download or read book Stock Market Investment written by Katrik B. Athreya and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Optimal Accumulation of Human Capital Over the Life Cycle by : John W. Graham
Download or read book The Optimal Accumulation of Human Capital Over the Life Cycle written by John W. Graham and published by . This book was released on 1979 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper summarizes the important contributions of the new life cycle human capital literature and demonstrates that many of these results can be derived more simply than in their original presentations. Within three period discrete-time framework it is demonstrated how the optimal pattern of human capital investment over the life cycle depends upon the choice of the objective function, the life cycle of leisure, and the extent of nonmarket benefits of human capital. The paper offers sufficient conditions for the optimality of a profile of monotonically declining investment activity over the life cycle.
Book Synopsis Human Capital Risk and Portfolio Choice by : Ann Lombardi
Download or read book Human Capital Risk and Portfolio Choice written by Ann Lombardi and published by . This book was released on 2003 with total page 402 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Non Tradeable Human Capital and Household Asset Allocation by :
Download or read book Non Tradeable Human Capital and Household Asset Allocation written by and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis is comprised of two essays that investigate household consumption and portfolio choices in dynamic life cycle frameworks. In the first essay, I explain that stock market participation and stockholding are increasing in the level of education and financial wealth without relying on commonly used assumptions about differences in the cost of processing financial information among households. The key aspects of the model are recursive preferences, education attainment and stock market participation. Households with low risk aversion and high elasticity of intertemporal substitution (EIS) are more likely to exercise their education option, accumulate large wealth, invest in stock markets and invest heavily in stocks. These findings are consistent with three separate, but related, strands of the literature on i) household asset holding, ii) utility preferences based on household level financial data, and iii) utility preferences and education attainment. I find that, consistent with these studies, better educated households accumulate more financial wealth, hold a larger fraction of wealth in equity, have a higher EIS and are less risk averse than their less educated counterparts. In the second essay, I investigate the fact that the fraction of financial wealth invested in equity is increasing in financial wealth in the cross section of households, a known fact that contradicts existing theories in the literature. I show that the contemporaneous positive correlation between human capital and financial wealth values is increasing in the persistence of labor income shocks. While human capital and financial wealth independently have opposing direct effects on equity shares, human capital effects dominate if labor income shocks are highly persistent, generating increasing equity shares in financial wealth. Both a simple model and a realistically calibrated life cycle model of consumption and portfolio choice are shown to generate the results. The predictions are s.
Book Synopsis Human Capital and Economic Growth by : Alberto Bucci
Download or read book Human Capital and Economic Growth written by Alberto Bucci and published by Springer Nature. This book was released on 2019-11-26 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt: This edited collection explores the links between human capital (both in the form of health and in the form of education), demographic change, and economic growth. Using empirical as well as theoretical perspectives, the authors investigate several important issues in the context of human capital, namely population ageing, inequality, public policy, and long-term economic development. Ultimately, they demonstrate that the accumulation of human capital is of crucial importance to long-run economic growth.
Book Synopsis Human Capital as Age-Dependent Asset Mix by : Takao Kobayashi
Download or read book Human Capital as Age-Dependent Asset Mix written by Takao Kobayashi and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management by : Hugh H. Kim
Download or read book Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management written by Hugh H. Kim and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the theoretical impact of including two empirically-grounded insights in a dynamic life cycle portfolio choice model. The first is to recognize that, when managing their own financial wealth, investors incur opportunity costs in terms of current and future human capital accumulation, particularly if human capital is acquired via learning by doing. The second is that we incorporate age-varying efficiency patterns in financial decisionmaking. Both enhancements produce inactivity in portfolio adjustment patterns consistent with empirical evidence. We also analyze individuals' optimal choice between self-managing their wealth versus delegating the task to a financial advisor. Delegation proves most valuable to the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs, as well as delegation, in a life cycle setting.
Book Synopsis Essays in Life-cycle Planning and Risk Management in the Presence of Risky Human Capital by : Jonathan Treussard
Download or read book Essays in Life-cycle Planning and Risk Management in the Presence of Risky Human Capital written by Jonathan Treussard and published by . This book was released on 2008 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The possibility that one's labor income fluctuates over time, i.e. human capital risk, is arguably the largest source of uncertainty faced by most adult individuals. This dissertation addresses optimal career risk management and retirement planning from the perspective of modern finance. In Chapter 1, we develop a model emphasizing the ability to change occupations as a means to manage human capital risk. The individual may change occupations at most once over her working years, and her decision to exercise her career option entails a deterministic transition phase. Our methodology employs some of the most advanced techniques in contingent claims analysis to ascertain the value of this option. From the perspective of finance theory, the individual's career option allows her to exchange a dividend-paying asset of low value (employment in her initial occupation) for one of high value (employment in the alternative occupation). The ability to obtain the latter asset at below market prices is the source of the option's value, which is as high as 2 1/2 years' worth of initial labor earnings, increasing human capital wealth by nearly 8 percent. This chapter also examines the effect of labor earnings volatility on the optimal choice of one's initial occupation. It is shown that starting out in the riskier occupation is optimal only if earnings volatility is high and switching costs low. In Chapter 2, we study repeated occupational mobility. Exploiting an infinite-horizon formulation, the model permits pseudo closed-form solutions. Because the individual loses the ability to effectively change occupations over time as her health status and overall capacities deteriorate, the model mirrors the most robust fact about individual career choice: the average number of occupation changes declines steadily over time. We demonstrate that repeated career options are significantly more valuable than their once-in-a-lifetime counterparts, gaining 21 percent in value at the calibration benchmark. In Chapter 3, we analyze target-date retirement funds and conclude that retirement investment vehicles should alter portfolio holdings not only based on the individual's expected retirement date but should also account for labor income risk along occupational lines.
