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OPTIMAL LIFE-CYCLE INVESTING

Pejicic, Sasa LU (2011) NEKM01 20111
Department of Economics
Abstract
This thesis is concerned with optimal life-cycle investing. More precisely, the subject of the thesis is the optimal portfolio choice of an investor with risky labor income and long investment horizon.
The objective is to investigate effects of uninsurable labor income and retirement on the optimal portfolio choice of the investor in question.
Difference in optimal allocation of wealth to risky and safe assets is compared for employed and retired investors.
In addition, the effect of an increasing income risk on savings and optimal portfolio fraction of the risky asset is examined.
The main conclusion is that the investors should invest more in risky assets while they are working and that they should allocate their wealth towards... (More)
This thesis is concerned with optimal life-cycle investing. More precisely, the subject of the thesis is the optimal portfolio choice of an investor with risky labor income and long investment horizon.
The objective is to investigate effects of uninsurable labor income and retirement on the optimal portfolio choice of the investor in question.
Difference in optimal allocation of wealth to risky and safe assets is compared for employed and retired investors.
In addition, the effect of an increasing income risk on savings and optimal portfolio fraction of the risky asset is examined.
The main conclusion is that the investors should invest more in risky assets while they are working and that they should allocate their wealth towards higher levels of safe assets as they approach retirement. Further, an increased level of labor income risk tends to reduce willingness to invest in the risky asset and increase willingness to save. A further negative effect can arise from positive correlation between labor income and returns on the risky asset, which can reduce risky asset holdings of employed investors below the level of retired investors. (Less)
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author
Pejicic, Sasa LU
supervisor
organization
alternative title
Optimal Portfolio Choice and Strategic Asset Allocation for Investors with Long-Horizon and Nontradable Labor Income
course
NEKM01 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
Life-cycle investing, Optimal portfolio choice, Labor income risk, Long-horizon, Retirement, Risky asset, Safe asset
language
English
id
1894889
date added to LUP
2011-05-20 10:20:53
date last changed
2011-05-20 10:20:53
@misc{1894889,
  abstract     = {This thesis is concerned with optimal life-cycle investing. More precisely, the subject of the thesis is the optimal portfolio choice of an investor with risky labor income and long investment horizon.
The objective is to investigate effects of uninsurable labor income and retirement on the optimal portfolio choice of the investor in question.
Difference in optimal allocation of wealth to risky and safe assets is compared for employed and retired investors.
In addition, the effect of an increasing income risk on savings and optimal portfolio fraction of the risky asset is examined.
The main conclusion is that the investors should invest more in risky assets while they are working and that they should allocate their wealth towards higher levels of safe assets as they approach retirement. Further, an increased level of labor income risk tends to reduce willingness to invest in the risky asset and increase willingness to save. A further negative effect can arise from positive correlation between labor income and returns on the risky asset, which can reduce risky asset holdings of employed investors below the level of retired investors.},
  author       = {Pejicic, Sasa},
  keyword      = {Life-cycle investing,Optimal portfolio choice,Labor income risk,Long-horizon,Retirement,Risky asset,Safe asset},
  language     = {eng},
  note         = {Student Paper},
  title        = {OPTIMAL LIFE-CYCLE INVESTING},
  year         = {2011},
}