Fitting parsimonious household-portfolio models to data

  • 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.

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Author:Sylwia Hubar, Christos Koulovatianos, Jian Li
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 489
Series (Serial Number):CFS working paper series (489)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:2014
Year of first Publication:2014
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2014/11/25
Tag:Epstein-Zin-Weil recursive preferences; business equity; household-portfolio shares; subsistence consumption; wealth inequality
Issue:November 11, 2014
Page Number:101
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht