Households and Portfolio Choice
Friday, Jan. 4, 2019 10:15 AM - 12:15 PM
- Chair: Stephan Siegel, University of Washington
A Life-Cycle Model with Unemployment Traps
AbstractThis paper extends the life-cycle model allowing for a personal disaster risk (PDR)
during working age, such as long-term unemployment risk. This non-linear income
risk reduces both early consumption and early risk taking, shifting them to later
in life, compensating the stimulus due to the longer expected working years of the
young. Despite higher wealth, the implied cross-sectional distribution of consumption
growth displays negative skewness. Effects are stronger when the rare permanent reduction
in labor income is potentially larger, albeit with lower expected value. PDR is a
robust, first-order determinant of life-cycle choices, amplifying the welfare losses of
suboptimal default investments rules, as well.
Advertising Exposure and Portfolio Choice: Estimates Based on Sports Sponsorships
AbstractProduct market advertising, by acting as a costly signal of quality, is thought to increase the demand for a company’s stock as well as its products. I construct a dataset of publicly traded sports sponsors in the US and develop an instrument for investor exposure to advertising via these sponsorships. I show that investors living in a city where major professional sports teams are sponsored by a given company, local or nonlocal, are more likely to purchase stocks in that company. The portfolio effects from sports sponsorships are large and suggest that advertising is even more important than local bias.
Political Uncertainty and Household Stock Market Participation
AbstractUsing a unique micro-level panel dataset, we relate households’ stock market participation to policy uncertainty. We show that households significantly reduce their equity participation during periods of high policy uncertainty, identified by gubernatorial elections. The magnitude of the participation cycles varies with risk aversion, employment risk, and cost of processing information. In certain situations, election-triggered drop in participation is followed by a partial increase in post-election years as the uncertainty over policy outcomes subsides, reflecting a real distortion. Our findings suggest that policy uncertainty is an important channel through which the political process creates a negative externality in financial markets.
- G1 - General Financial Markets