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).