Working Paper

Occupation-level income shocks and asset returns: their covariance and implications for portfolio choice

Abstract: This paper develops and applies a simple graphical approach to portfolio selection that accounts for covariance between asset returns and an investor's labor income. Our graphical approach easily handles income shocks that are partly hedgeable, multiple risky assets, multiple risky assets, many periods, and life cycle considerations.

Keywords: life cycle portfolio choice; risky labor income; graphical approach; occupation-level income shocks;

JEL Classification: D52; D91; G11; J30;

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Bibliographic Information

Provider: Federal Reserve Bank of Boston

Part of Series: Working Papers

Publication Date: 2013-10-24

Number: 13-9

Pages: 58 pages