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...

The non-negativity constraint on inventories imposed on the rational expectations theory of speculative storage implies that the conditional mean and variance of commodity prices are non-linear in lagged prices and have a kink at a threshold point. In this paper, the structural parameters of...

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...

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 examine the impact of US monetary policy shocks on exchange rates using the monetary policy indicator proposed by Bernanke and Mihov [Quarterly Journal of Economics, 113 (1998) 869–902]. We find evidence for instantaneous, rather than delayed, US dollar overshooting after a monetary shock...

We show that a life-cycle model with realistically calibrated uninsurable labor 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 investigate whether a rare event (like the default of the annuity provider) can explain the annuity market participation puzzle. High risk aversion is needed to change behavior in the presence of such a disastrous shock but higher risk aversion also makes annuities more valuable. Therefore,...

We show that a life-cycle model with realistically calibrated uninsurable labor 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 use a general equilibrium life-cycle model with incomplete markets and heterogeneous agents to evaluate the macroeconomic and welfare implications of Defined Benefit (DB) versus Defined Contribution (DC) systems, and to investigate the effects of incremental reform within a particular system....

Using U.K. microeconomic data, we analyze the empirical determinants of voluntary annuity market demand. We find that annuity market participation increases with financial wealth, life expectancy and education and decreases with other pension income and a possible bequest motive for surviving...