We study quantitatively how uncertainty in expected stock return predictability affects life-cycle portfolio choice and wealth accumulation in the presence of undiversifiable labor income risk. Households filter information about future expected returns from observed predictors and realized...

We solve for optimal consumption and portfolio choice in a life-cycle model with short-sales and borrowing constraints, undiversifiable labor income risk and a predictable, time-varying, equity premium and show that the investor pursues aggressive market timing strategies. Importantly, in the...

Intra-household heterogeneity can quantitatively affect the predictions of life-cycle portfolio choice models. Empirically, double-income households, single-income households and singles have different exposures to background risks and differ in covariates affecting financial decisions, reacting...

We propose a normative strategic asset allocation model for long horizon sovereign wealth funds (SWFs) subject to a sustainable spending constraint and background risks. SWFs should have lower stock market exposure as they mature and should use the SWF to smooth business cycle shocks, rather...