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| Author | : Wei-Ting Pan |
| Publisher | : |
| Total Pages | : 296 |
| Release | : 2016 |
| Genre | : Pensions |
| ISBN | : |
| Author | : Alan L. Gustman |
| Publisher | : |
| Total Pages | : 0 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
This paper considers the prospects for adding choice of portfolio composition to a life cycle model of retirement and saving, while preserving the ability of the model to continue to explain the course of saving and retirement. If eventually successful, such a modification might be used to improve understanding of retirement and saving behavior both under the current Social Security system, and under variations involving personal accounts. In particular we consider the implications of separating parameters that now reflect both risk aversion and time preference. We explore a number of barriers to developing a specification that is consistent with observed saving, retirement and investment choices. In our previous model with exponential consumption, individuals would hold portfolios exclusively in stocks, contrary to observation. Changing the exponent of consumption can reduce stock holdings below 100%, but at the cost of implausible retirement behavior. Introducing a separate parameter for risk aversion can restore plausible retirement behavior, but the pattern of stock holdings is too high, especially at younger ages, for plausible values of the risk aversion parameter. At the moment, no easy solution is at hand to this fundamental problem now being engaged by financial economists. This suggests that models of retirement and saving may, for the immediate future, be forced to constrain portfolio composition to correspond with levels observed in the data, postponing the inclusion of portfolio mix as a choice variable until further progress is made in modeling that behavior. This does not necessarily reduce the efficiency of life cycle models of retirement and saving. Rather it recognizes that portfolio choice may be influenced by behavior that is not fully consistent with that posed by a life cycle model. Individuals may, for example, be accepting recommendations from planners or firms that they would not otherwise follow if they fully understood how to balance risk and return in portfolio choice in the same way they balance risk and return in their saving and retirement decisions. If these behavioral considerations govern their portfolio choice, while retirement and saving are determined by life cycle considerations, a model that correctly constrains portfolio composition may in fact generate parameter estimates that accurately reflect the forces governing retirement and saving behavior.
| Author | : John Y. Campbell |
| Publisher | : OUP Oxford |
| Total Pages | : 272 |
| Release | : 2002-01-03 |
| Genre | : Business & Economics |
| ISBN | : 019160691X |
Academic finance has had a remarkable impact on many financial services. Yet long-term investors have received curiously little guidance from academic financial economists. Mean-variance analysis, developed almost fifty years ago, has provided a basic paradigm for portfolio choice. This approach usefully emphasizes the ability of diversification to reduce risk, but it ignores several critically important factors. Most notably, the analysis is static; it assumes that investors care only about risks to wealth one period ahead. However, many investors—-both individuals and institutions such as charitable foundations or universities—-seek to finance a stream of consumption over a long lifetime. In addition, mean-variance analysis treats financial wealth in isolation from income. Long-term investors typically receive a stream of income and use it, along with financial wealth, to support their consumption. At the theoretical level, it is well understood that the solution to a long-term portfolio choice problem can be very different from the solution to a short-term problem. Long-term investors care about intertemporal shocks to investment opportunities and labor income as well as shocks to wealth itself, and they may use financial assets to hedge their intertemporal risks. This should be important in practice because there is a great deal of empirical evidence that investment opportunities—-both interest rates and risk premia on bonds and stocks—-vary through time. Yet this insight has had little influence on investment practice because it is hard to solve for optimal portfolios in intertemporal models. This book seeks to develop the intertemporal approach into an empirical paradigm that can compete with the standard mean-variance analysis. The book shows that long-term inflation-indexed bonds are the riskless asset for long-term investors, it explains the conditions under which stocks are safer assets for long-term than for short-term investors, and it shows how labor income influences portfolio choice. These results shed new light on the rules of thumb used by financial planners. The book explains recent advances in both analytical and numerical methods, and shows how they can be used to understand the portfolio choice problems of long-term investors.
| Author | : John Y. Campbell |
| Publisher | : |
| Total Pages | : 32 |
| Release | : 1999 |
| Genre | : Retirement income |
| ISBN | : |
If household portfolios are constrained by borrowing and short-sales restrictions asset markets, then alternative retirement savings systems may affect household welfare by relaxing these constraints. This paper uses a calibrated partial-equilibrium model of optimal life-cycle portfolio choice to explore the empirical relevance of these issues. In a benchmark case, we find ex-ante welfare gains equivalent to a 3.7% increase in consumption from the investment of half of retirement wealth in the equity market. The main channel through which these gains are realized is that the higher average return on equities permits a lower Social Security tax rate on younger households, which helps households smooth their consumption over the life cycle. There is a smaller welfare gain of 0.5% of consumption when Social Security tax rates are held constant. We also find that realistic heterogeneity of risk aversion and labor income risk can strongly affect optimal portfolio choice over the life cycle, which provides one argument for a privatized Social Security system with an element of personal portfolio choice
| Author | : o F. Cocco |
| Publisher | : |
| Total Pages | : |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
This article solves a realistically calibrated life cycle model of consumption and portfolio choice with non-tradable labor income and borrowing constraints. Since labor income substitutes for riskless asset holdings, the optimal share invested in equities is roughly decreasing over life. We compute a measure of the importance of human capital for investment behavior. We find that ignoring labor income generates large utility costs, while the cost of ignoring only its risk is an order of magnitude smaller, except when we allow for a disastrous labor income shock. Moreover, we study the implications of introducing endogenous borrowing constraints in this incomplete-markets setting.
| Author | : Jialun Li |
| Publisher | : |
| Total Pages | : 114 |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
| Author | : |
| Publisher | : Elsevier |
| Total Pages | : 749 |
| Release | : 2018-09-27 |
| Genre | : Business & Economics |
| ISBN | : 0444633898 |
Handbook of Behavioral Economics: Foundations and Applications presents the concepts and tools of behavioral economics. Its authors are all economists who share a belief that the objective of behavioral economics is to enrich, rather than to destroy or replace, standard economics. They provide authoritative perspectives on the value to economic inquiry of insights gained from psychology. Specific chapters in this first volume cover reference-dependent preferences, asset markets, household finance, corporate finance, public economics, industrial organization, and structural behavioural economics. This Handbook provides authoritative summaries by experts in respective subfields regarding where behavioral economics has been; what it has so far accomplished; and its promise for the future. This taking-stock is just what Behavioral Economics needs at this stage of its so-far successful career. Helps academic and non-academic economists understand recent, rapid changes in theoretical and empirical advances within behavioral economics Designed for economists already convinced of the benefits of behavioral economics and mainstream economists who feel threatened by new developments in behavioral economics Written for those who wish to become quickly acquainted with behavioral economics
| Author | : Danan Gu |
| Publisher | : Springer |
| Total Pages | : 5507 |
| Release | : 2021-11-03 |
| Genre | : Family & Relationships |
| ISBN | : 9783030220082 |
This eight-volume encyclopedia brings together a comprehensive collection of work highlighting established research and emerging science in all relevant disciplines in gerontology and population aging. It covers the breadth of the field, gives readers access to all major sub-fields, and illustrates their interconnectedness with other disciplines. With more than 1300 cross-disciplinary contributors—including anthropologists, biologists, economists, psychiatrists, public policy experts, sociologists, and others—the encyclopedia delves deep into key areas of gerontology and population aging such as ageism, biodemography, disablement, longevity, long-term care, and much more. Paying careful attention to empirical research and literature from around the globe, the encyclopedia is of interest to a wide audience that includes researchers, teachers and students, policy makers, (non)governmental agencies, public health practitioners, business planners, and many other individuals and organizations.
| Author | : Olivia S. Mitchell |
| Publisher | : Oxford University Press |
| Total Pages | : 256 |
| Release | : 2018-08-23 |
| Genre | : Business & Economics |
| ISBN | : 0192562398 |
Financial market developments over the past decade have undermined what was once thought to be conventional wisdom about saving, investment, and retirement spending. How Persistent Low Returns Will Shape Saving and Retirement explores how the weak capital market performance predicted for the next several years will shape pension saving, investment, and decumulation plans. Academics, policymakers, and industry leaders debate alternative strategies to cope with these challenges globally, as economic growth remains slow and low returns become the 'new normal.' This volume includes contributions from plan sponsors, benefit specialists, actuaries, academics, regulators, and others working to design resilient pensions for the next decades. Together, they identify several new tools for retirement savers and pension managers.
| Author | : Evert Carlsson |
| Publisher | : |
| Total Pages | : 32 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
This paper investigates some welfare effects of forced saving through a mandatory pension scheme. The framework for the analysis is a life-cycle model of a borrowing constrained individual's consumption and portfolio choice in the presence of uncertain labour income and realistically calibrated tax and pension systems. Pension benefits stem from both a defined benefit and a notionally defined contribution part, the latter being indexed to stochastic aggregate labour income. We show that agents attribute little value to their pension savings in early life. Furthermore, we estimate the welfare loss for individuals in mid-life associated with the dependency between pension returns and labour income growth to 1.2% of annual consumption.
