Temperant Portfolio Choice and Background Risk: Evidence from France
Paris School of Economics Working Paper No. 2007-16
38 Pages Posted: 22 Jun 2007
Date Written: June 2007
Abstract
We explore empirically whether earnings uncertainty and borrowing constraints deter households from the stockmarket, consistent with the predictions of theoretical studies of portfolio choice in the presence of uninsurable earnings. Recent extensions highlight the importance of the correlation between earnings and financial risks. We use a self-assessed proxy for the correlation from the DELTA-TNS 2002 cross-sectional survey. While income risk does not deter from the stockmarket those households' reporting a negative correlation, it does for those who report a non-negative sign, consistent with economic theory predictions.
Keywords: Portfolio Choice, Correlated Background Risk, Self-Assessed Income Uncertainty, Liquidity Constraints
JEL Classification: D81, G11
Suggested Citation: Suggested Citation
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