Finance Papers

Document Type

Journal Article

Date of this Version

2010

Publication Source

Journal of Financial Economics

Volume

96

Issue

2

Start Page

331

Last Page

344

DOI

10.1016/j.jfineco.2010.01.001

Abstract

In this paper, we show that the existence of a large, negative wealth shock and insufficient insurance against such a shock could explain both the limited stock market participation puzzle and the low-consumption–high-savings puzzle. We then conduct an empirical analysis on the relation between household portfolio choices and access to private insurance and various types of government safety nets. The empirical results demonstrate that a lack of insurance against large, negative wealth shocks is positively correlated with lower participation rates and higher saving rates. Overall, the evidence suggests an important role of insurance in household investment and savings decisions.

Copyright/Permission Statement

© 2010. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.

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Date Posted: 27 November 2017

This document has been peer reviewed.