Keywords: Long-Run Income Risk, Cointegration, Investment, Retirement
JEL Classifications: C61, E21, G11
학회소식
[2022년 5차 CAFM2022]Optimal Retirement with Long-Run Income Risk
작성자 : 관리자
조회수 : 329
게시일 :
2022-12-20
We analyze an optimal portfolio problem where an individual receives non-traded labor income and has to decide on her allocation between a stock and a risk-free asset, as well as decide on the time when she goes into retirement. We find that adding long-run income risk modeled as a cointegration between labor income and stock price returns changes the retirement strategy and the optimal risky asset allocation mix. This helps explain the lack of stock-market participation by young individuals with little wealth and a risky asset-allocation share that is increasing and concave in wealth. It also helps explain the empirical evidence that stock investment increases with retirement age, i.e., individuals who retire early with less wealth invest less in the stock market.
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