Discussion Paper Details

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Title: Life-Cycle Risk-Taking with Personal Disaster Risk

Author(s): Fabio-Cesare Bagliano, Carolina Fugazza and Giovanna Nicodano

Publication Date: June 2021

Keyword(s): beta distribution, disaster risk, non-linear income process and Portfolio choice

Programme Area(s): Financial Economics

Abstract: This paper examines households' self-insurance in financial markets when a rare personal disaster, such as disability or long-term unemployment, may occur during working years. Personal disaster risk alters lifetime ex-ante investment choices, even if most workers will not experience a disaster. Uncertainty about the size of human capital losses, which characterizes rare disasters, results in lower risk-taking at the beginning of working life, and is crucial in order to match the observed age profiles of US investors from 1992 to 2016.

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Bibliographic Reference

Bagliano, F, Fugazza, C and Nicodano, G. 2021. 'Life-Cycle Risk-Taking with Personal Disaster Risk'. London, Centre for Economic Policy Research.