Saving rates and portfolio choice with subsistence consumption : [Version January 16, 2010]

  • We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in stocks by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant "keeping-up with the Joneses" weighted average consumption playing the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say.

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Metadaten
Author:Carolina Achury, Sylwia Hubar, Christos Koulovatianos
URN:urn:nbn:de:hebis:30:3-341063
URL:https://www.essex.ac.uk/ebs/research/efc/seminar_papers/AKH_Merton_subsistence_May_2010.pdf
Document Type:Report
Language:English
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2014/09/22
Tag:Stone-Geary preferences; controlled diffusion; elasticity of intertemporal substitution; household portfolios; two-asset portfolio; wealth inequality
Issue:Version January 16, 2010
Page Number:35
HeBIS-PPN:401591336
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universit├Ątspublikationen
Licence (German):License LogoDeutsches Urheberrecht