display positive correlation between their own permanent income innovations and market returns. These results owe to a two … of labor income risks. The second step reconstructs the individual life-cycle dynamics of persistent shocks through a … Kalman filter applied to the estimated labor income process. We are thus able to obtain the full cross-sectional distribution …

nearly completely crowded-out by increased labor income (background) risk …, stochastic labor income and endogenously-determined retirement. We find that the ratio of total wealth-to-labor income … labor income. Finally, we consider the impact of asset return/labor income correlation and find that equity holdings are …

Households face earnings risk which is non-normal and varies by age and over the income distribution. We show that … assets. Because households are subject to more background risk than previously considered, the estimated model implies a … substantially lower coefficient of risk aversion. We also find renewed support for rule-of-thumb investment strategies under the …