DP15370 Income Risk, Ownership Dynamics, and Portfolio Decisions
|Author(s):||Yosef Bonaparte, George Korniotis, Alok Kumar|
|Publication Date:||October 2020|
|Keyword(s):||Income risk, Market entry/exit, non-retirement accounts, ownership turnover, Trading Costs|
|JEL(s):||D14, G11, G12|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15370|
This study examines the stock market entry and exit decisions of U.S. households. We find that around 25% of households enter or exit from their non-retirement investment accounts biennially. Cross-sectional and time-series tests indicate that income risk affects equity ownership turnover. A portfolio choice model with an income process extracted from survey data shows that idiosyncratic income shocks are more important for dynamic equity ownership decisions than aggregate stock market risk. The model yields realistic estimates for the coefficient of relative risk aversion (= 3.09) and the discount factor (= 0.97).