We show that a life cycle model with realistically calibrated uninsurable labour income risk and moderate risk aversion can simultaneously match stock market participation rates and asset allocation decisions conditional on participation. The key ingredients of the model are Epstein-Zin...

We solve a model with incomplete markets and heterogeneous agents that generates a large equity premium, while simultaneously matching stock market participation and individual asset holdings. The high risk premium is driven by incomplete risk sharing among stockholders, which results from the...

We study the infinite horizon model of household portfolio choice under liquidity constraints and revisit the portfolio specialization puzzle for impatient consumers with access to riskless and risky assets. We consider a labour income process that allows us to decompose the consumption and...

Economic theory suggests that uninsurable income risk, health risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household's portfolio. In fact, if its utility function exhibits decreasing absolute risk aversion and decreasing prudence, a household...

This Paper solves numerically for the optimal consumption and portfolio choice of an infinitely lived investor facing short sales and borrowing constraints, undiversifiable labour income risk and a predictable time varying equity premium. The investor aggressively times the market while positive...

We calibrate a life-cycle model with uninsurable labour income risk and borrowing constraints to match wealth accumulation and portfolio allocation profiles of direct and indirect stockholders in both taxable and tax-deferred accounts. Tax-deferred accounts generate an increase in wealth...

This Paper solves for optimal international portfolio choice in the presence of liquidity constraints and undiversifiable labour income risk. Optimal portfolios are internationally diversified while positive correlation between domestic stock market returns and permanent labour income shocks can...

Motivated by the success of internal habit formation preferences in explaining asset-pricing puzzles, we introduce these preferences in a life-cycle model of consumption and portfolio choice with liquidity constraints, undiversifiable labour income risk and stock-market participation costs. In...

We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. There is substantial evidence that more educated people are more likely to invest in the stock market....

Money managers behave strategically when competing for fund flows within relatively small groups. We study strategic interaction between two risk-averse managers in continuous time, characterizing analytically their unique equilibrium dynamic investments. Driven by chasing and contrarian...