We study how risk aversion affects precautionary savings when considering monotone recursive Kreps-Porteus preferences. In a general infinite-horizon setting, we prove that risk aversion unambiguously increases precautionary savings. The result is derived without specifying income uncertainty,...

We study the effect on savings of an increase in the capital risk of the investment opportunities when the representative consumer is allowed to optimally choose her portfolio. Sandmo (1970) and Levhari and Srinivasan (1969) prove that individuals with high risk-aversion and time-separable,...

We build a realistically calibrated life-cycle model of housing decisions under divorce risk. As observed in the data, our model predicts the recent increase in divorce rates leads to reduced homeownership rates. The event of a divorce negatively affects homeownership, and this effect is...

I show that countercyclical earnings dynamics can have quantitatively important effects on saving and portfolio choice decisions over the life cycle. During expansions (recessions) when expected future earnings growth is high (low), households save less (more) and also invest a higher (lower)...

Effective design and regulation of retirement benefits require accurate understanding of how the elderly decumulate. We analyse the income, assets and decumulation patterns of a longitudinal panel of 10,000 Australian age pensioners. On average, age pensioners preserve financial and residential...

Precautionary savings have often been analyzed with regard to its impact on current savings. This work focuses instead on the impact of uncertainty on savings under bequest form. We thus turn the focus on estimating whether and to what extent income variability does have an effect on post-mortem...

In fifteen European countries, China, and the US, stocks and business equity as a share of total household assets are represented by an increasing and convex function of income/wealth. A parsimonious model fitted to the data shows why background labor-income risk can explain much of this...

In this paper we extend the traditional life cycle model of saving and portfolio choice to allow for possible long-term unemployment spells to have permanent effects on subsequent labor income prospects. The risk of losing future labor income could imply strong human capital erosion for the...

This paper characterizes optimal consumption and investment policies for investors with asset return predictability, stochastic labor income and endogenously-determined retirement. We find that the ratio of total wealth-to-labor income (normalized wealth) is the primary determinant of the...

By mapping households to US employers traded in the stock market and using daily spending data, we provide novel evidence of household spending response to employer-specific forward-looking volatility shocks. A 10 percent change in firm uncertainty leads households to change their average...