Research / BFI Working PaperJan 24, 2019

Heterogeneous Households under Uncertainty

I characterize a dynamic economy under general distributions of households’ risk tolerance, endowments, and beliefs about long-term growth. As the economy expands and the stock market rises (a) the fraction of households with declining consumption-share increases; (b) the wealth-share of high risk-tolerant households increases; (c) richer households’ wealth display a higher CAPM beta; and (d) households’ portfolios change qualitatively. A log-utility investor for instance borrows in contractions but lends in expansions. Variations in uncertainty and expected growth generate trading volume due to risk sharing. Higher uncertainty increases stock prices, risk premiums, volatility, wealth inequality and the dispersion of portfolio holdings, consistently with the events in the late 1990s.

More Research From These Scholars

BFI Working Paper Sep 1, 2018

Taxation and Innovation in the 20th Century

Ufuk Akcigit, John Grigsby, Tom Nicholas, Stefanie Stantcheva
Topics:  Fiscal Studies, Economic Mobility & Poverty, Tax & Budget
BFI Working Paper Jan 1, 2019

Religion and Sanitation Practices

Anjali Adukia, Marcella Alsan, Kim Babiarz, Jeremy D. Goldhaber-Fiebert, Lea Prince
Topics:  Health care, Economic Mobility & Poverty