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Portfolio and Consumption Decisions under Mean-Reverting Returns and Mean-Reverting Labor Income Growth

abstract This papers focus is on consumption/portfolio optimization under time-varying investment opportunities and dynamic non-financial (labor) income using analytical methods. The most striking result is that counter-cyclical non-financial income growth (income growth is low when expected returns are high) can lead to a strong reduction of optimal risky investment and consumption. Hence, it can be stated that dynamic labor income is a simple and comprehensible instrument to explain why some people do not participate in the stock market
   
type working paper (English)
   
keywords consumption/portfolio optimization, labor income, 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). Portfolio and Consumption Decisions under Mean-Reverting Returns and Mean-Reverting Labor Income Growth: Working Paper University of St. Gallen.