Portfolio and Consumption Decisions under Mean-Reverting Returns and Mean-Reverting Labor Income Growth
Type
working paper
Date Issued
2011
Author(s)
Moos, Daniel
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
Language
English
Keywords
consumption/portfolio optimization
labor income
time-varying investment opportunities
time-varying labor income growth
HARA-utility
HJB-equation
closed-form solutions
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Working Paper University of St. Gallen
Subject(s)
Division(s)
Eprints ID
72495
File(s)![Thumbnail Image]()
Name
MRLI Alexandria 111026.pdf
Size
638.57 KB
Format
Adobe PDF
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