I study the effect of observable predictors that imperfectly predict conditional expected stock returns on optimal life-cycle consumption and portfolio choice in the presence of undiversifiable labor income risk. Investors filter the unobservable expected stock returns from realized predictive...

Households face earnings risk which is non-normal and varies by age and over the income distribution. We show that allowing for these rich features of earnings dynamics, in the context of a structurally estimated life-cycle portfolio choice model, helps to rationalize the limited participation...

This paper examines the extent to which the rate of change of private consumption (per capita) can be forecast on the basis of the rates of change of predictable income and the rate of return on assets-share yields and short-term interest. As is well known, a strong link between a change in...