Hedging labor income risk

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and …nancial investment decisions. In particular, we relate changes in wage volatility to changes in the portfolio holdings for households that switched industries between 1999 and 2002. We …nd that households do adjust their portfolio holdings when switching jobs, which is consistent with the idea that households hedge their human capital risk in the stock market. The results are statistically and economically signi…cant. A household going from an industry with low wage volatility to one with high volatility will ceteris paribus decrease its portfolio share of risky assets by up to 35%, or USD 15,575.

Labor Market Uncertainty and Portfolio Choice Puzzles

“…Based on industry-level laborincome volatility measures from Campbell, Cocco, Gomes, and Maenhout (2001), we show that a household whose head is working in an industry with high income volatility does exhibit a lower risky share. Our result is consistent with previous findings by Angerer and Lam (2009), who find a negative correlation between labor-income risk and risky share in the National Longitudinal Survey of Young Men (NLSY), and Betermier, Parlour, and Jansson (2012) who show that, based on Swedish data, households switching from an industry with a low wage volatility to one with high wage volatility reduces the share of risky assets in financial investment.…”

Incompatible European Partners? Cultural Predispositions and Household Financial Behavior

“…First, we begin with all households in both the regular and immigrant LINDA databases. In LINDA, two adults are defined as in the same household in a given year if they are either married or legal partners or if they live together and have children in common (Betermier et al, 2012). To identify the reference person (head of household) in a given household, we follow the Canberra definition.…”

Optimal Life-Cycle Portfolios for Heterogeneous Workers

“…More recent work emphasizes that it is persistent, rather than temporary, income shocks that matter Angerer and Lam (2009). Betermier et al (2012) find that changes in wage volatility across industries explain changes in the portfolio share invested by households in risky assets. Another indicator of the sensitivity of equity investments to labour income risk rests on asset pricing models, whose ability to explain the cross sectional distribution of equity returns improves when human capital is considered.…”