Discussion paper

DP15370 Income Risk, Ownership Dynamics, and Portfolio Decisions

This study examines the stock market entry and exit decisions of U.S. households. We find that a significant portion of households enters or exits 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).


Bonaparte, Y, G Korniotis and A Kumar (eds) (2020), “DP15370 Income Risk, Ownership Dynamics, and Portfolio Decisions”, CEPR Press Discussion Paper No. 15370. https://cepr.org/publications/dp15370