Income Volatility and Portfolio Choices
Based on administrative data from Statistics Norway, we find economically significant shifts in households' financial
portfolios around individual structural breaks in labor-income volatility. According to our estimates, when income
risk doubles, households reduce their risky share of financial assets by 5 percentage points, thus tempering their
overall risk exposure. We show that our estimated risky share response is consistent with a standard portfolio choice
model augmented with idiosyncratic, time-varying income volatility.
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