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VGSF Finance Research Seminar

Wirtschaftsuniversität Wien, Departments 3 D3.0.22511:00 - 12:30

Type Lecture / discussion
SpeakerJohn Y. Campbell (Harvard University)
Organizer Wirtschaftsuniversität Wien The Cross-Section of Household Preferences

The FRS informs about state-of-the-art research in Finance.

This paper estimates the cross-sectional distribution of preferences in a large administrative panel of Swedish households. We consider a life-cycle portfolio choice model which incorporates risky labor income, safe and risky financial assets inside and outside retirement accounts, and real estate. We study middle-aged households grouped by education, industry of employment, and birth cohort as well as by their accumulated wealth and risky portfolio shares. Our model allows for heterogeneity in risk aversion, the elasticity of intertemporal substitution (EIS), and the rate of time preference. The average value of risk aversion is 4.16 and the average EIS is 1.00. The average rate of time preference is negative at -1.40%, probably a reflection of bequest motives that are omitted from our life-cycle model. Key cross-sectional patterns are high standard deviations of all three preference parameters (1.10, 0.44, and 3.05% respectively), a higher rate of time preference for households who enter our sample with low initial wealth, a weak negative correlation between risk aversion and the EIS, higher risk aversion for cohorts born earlier, and lower risk aversion for households with riskier labor income.

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