TY - JOUR
T1 - Portfolio choice over the life-cycle when the stock and labor markets are cointegrated
AU - Benzoni, Luca
AU - Collin-Dufresne, Pierre
AU - Goldstein, Robert S.
PY - 2007/10
Y1 - 2007/10
N2 - We study portfolio choice when labor income and dividends are cointegrated. Economically plausible calibrations suggest young investors should take substantial short positions in the stock market. Because of cointegration the young agent's human capital effectively becomes "stock-like." However, for older agents with shorter times-to-retirement, cointegration does not have sufficient time to act, and thus their human capital becomes more "bond-like." Together, these effects create hump-shaped life-cycle portfolio holdings, consistent with empirical observation. These results hold even when asset return predictability is accounted for.
AB - We study portfolio choice when labor income and dividends are cointegrated. Economically plausible calibrations suggest young investors should take substantial short positions in the stock market. Because of cointegration the young agent's human capital effectively becomes "stock-like." However, for older agents with shorter times-to-retirement, cointegration does not have sufficient time to act, and thus their human capital becomes more "bond-like." Together, these effects create hump-shaped life-cycle portfolio holdings, consistent with empirical observation. These results hold even when asset return predictability is accounted for.
UR - http://www.scopus.com/inward/record.url?scp=34250782431&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=34250782431&partnerID=8YFLogxK
U2 - 10.1111/j.1540-6261.2007.01271.x
DO - 10.1111/j.1540-6261.2007.01271.x
M3 - Article
AN - SCOPUS:34250782431
SN - 0022-1082
VL - 62
SP - 2123
EP - 2167
JO - Journal of Finance
JF - Journal of Finance
IS - 5
ER -
