We analytically show that a common across rich/poor individuals Stone-Geary utility function with subsistence consumption in the context of a simple two-asset portfolio-choice model is capable of qualitatively and quantitatively explaining: (i) the higher saving rates of the rich, (ii) the higher fraction of personal wealth held in risky assets by the rich, and (iii) the higher volatility of consumption of the wealthier. On the contrary, time-variant "keeping-up-withthe-Joneses" weighted average consumption which plays the role of moving benchmark subsistence consumption gives the same portfolio composition and saving rates across the rich and the poor, failing to reconcile the model with what micro data say.
, for helpful discussions, suggestions, and remarks. We thank the Nottingham School of Economics for …nancial support (project A911A8). Koulovatianos also thanks the Center for Financial Studies (CFS) in Frankfurt, for their hospitality and …nancial support.
Haliassos, Raj Mehra, Kjetil Storesletten, Motohiro Yogo, and participants of seminars and conferences in various places for helpful suggestions and remarks. We are indebted to the Nottingham School of Economics for …nancial support (project A911A8). Koulovatianos also thanks the Center for Financial Studies (CFS) in Frankfurt, for their hospitality and …nancial support.
Fitting Parsimonious Household-Portfolio Models to DataAbstract US data and new stockholding data from …fteen European countries and China exhibit a common pattern: stockholding shares increase in household income and wealth. Yet, there is a multitude of numbers to match through models. Using a single utility function across households (parsimony), we suggest a strategy for …tting stockholding numbers, while replicating that saving rates increase in wealth, too. The key is introducing subsistence consumption to an Epstein-Zin-Weil utility function, creating endogenous risk-aversion di¤er-ences across rich and poor. A closed-form solution for the model with insurable labor-income risk serves as calibration guide for numerical simulations with uninsurable labor-income risk.
, for helpful discussions, suggestions, and remarks. We thank the Nottingham School of Economics for …nancial support (project A911A8). Koulovatianos also thanks the Center for Financial Studies (CFS) in Frankfurt, for their hospitality and …nancial support.
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