Finance Papers

Document Type

Journal Article

Date of this Version

2011

Publication Source

Review of Financial Studies

Volume

23

Issue

11

Start Page

3929

Last Page

3965

DOI

10.1093/rfs/hhq092

Abstract

We develop a life-cycle consumption and portfolio choice model in which households have nonhomothetic utility over two types of goods, basic and luxury. We calibrate the model to match the cross-sectional and life-cycle variation in the basic expenditure share in the Consumer Expenditure Survey. The model explains the degree to which the portfolio share in risky assets rises in wealth in the cross-section of households in the Survey of Consumer Finances. For a given household, the portfolio share can fall in response to an increase in wealth, even though the model implies decreasing relative risk aversion.

Copyright/Permission Statement

This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Financial Studies following peer review. The version of record is available online at: http://dx.doi.org/10.1093/rfs/hhq092.

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Date Posted: 27 November 2017

This document has been peer reviewed.