Temperant Portfolio Choice and Background Risk: Evidence from France

Paris School of Economics Working Paper No. 2007-16

38 Pages Posted: 22 Jun 2007

See all articles by Luc Arrondel

Luc Arrondel

CNRS; Paris School of Economics (PSE); Banque de France

Hector F. Calvo Pardo

University of Southampton - Economics Division

Xisco Oliver

University of the Balearic Islands

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

Arrondel, Luc and Calvo Pardo, Hector F. and Oliver, Xisco, Temperant Portfolio Choice and Background Risk: Evidence from France (June 2007). Paris School of Economics Working Paper No. 2007-16, Available at SSRN: https://ssrn.com/abstract=995519 or http://dx.doi.org/10.2139/ssrn.995519

Luc Arrondel (Contact Author)

CNRS ( email )

3, rue Michel-Ange
Paris, 75794
France

Paris School of Economics (PSE)

48 Boulevard Jourdan
Paris, 75014 75014
France

Banque de France

Paris
France

Hector F. Calvo Pardo

University of Southampton - Economics Division ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom
+442380595051 (Phone)
+442380593858 (Fax)

Xisco Oliver

University of the Balearic Islands ( email )

Crtra. Valldemossa, km 7.5
Ed. Ramon Llull
Palma de Mallorca, Illles Balears 07122
Spain

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