University of St.Gallen
research platform alexandria
search publications
browse publications
by person
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
 
by year

Life-Cycle Models with Stock and Labor Market Cointegration: Insights from Analytical Solutions

abstract Two recent articles Lynch and Tan (2011) and Benzoni et al. (2007) show that optimal policies can be on reasonable level over the life-cycle if one takes into account dynamic labor income. This paper examines the economic framework of LT and BCG in complete markets. Based on our analytic results we show that the two models are closely related and that the BCG model can be considered as a special case of the LT model. Moreover, we introduce a two factor model with a cointegration factor that guarantees a long-run equilibrium between the stock and the labor market. We show that under the presence of a cointegration factor, the importance of a second factor decreases.
   
type working paper (English)
   
keywords consumption/portfolio optimization, labor income, cointegration, time-varying investment opportunities, time-varying labor income growth, HARA-utility, HJB-equation, closed-form solutions
   
date of appearance 2011
publisher Working Paper University of St. Gallen
review not reviewed
   
citation Moos, D. (2011). Life-Cycle Models with Stock and Labor Market Cointegration: Insights from Analytical Solutions: Working Paper University of St. Gallen.