This paper solves for optimal international portfolio choice in the presence of liquidity constraints and undiversifiable labor income risk. Optimal portfolios are internationally diversified while positive correlation between domestic stock market returns and permanent labor 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 labor income risk and stock-market participation costs. In...

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...

This paper discusses calibration and numerical solution of a wide range of household portfolio models. We illustrate the main conceptual, technical, and computational issues that arise in the context of household portfolio choice, and explore the implications of alternative modeling choices. We...

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 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 shows that the two main models in the buffer stock saving literature can be nested in a model that varies the level of available social insurance. Equivalently, the assumption about the time series process for labor income (and social insurance during unemployment) is crucial in...

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...