Hedging Labor Income Risk
Riksbank Research Paper Series No. 86
Sveriges Riksbank Working Paper Series No. 255
48 Pages Posted: 23 Feb 2012
Date Written: November 1, 2011
Abstract
We use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and financial 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 find 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 significant. 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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income
-
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
By Laurent E. Calvet, John Y. Campbell, ...
-
Down or Out: Assessing the Welfare Costs of Household Investment Mistakes
By Laurent E. Calvet, John Y. Campbell, ...
-
Hedging, Familiarity and Portfolio Choice
By Massimo Massa and Andrei Simonov
-
Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence
-
Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence
-
Investing Retirement Wealth: a Life-Cycle Model
By John Y. Campbell, Joao F. Cocco, ...