Working Paper: NBER ID: w28788
Authors: Laurent E. Calvet; John Y. Campbell; Francisco Gomes; Paolo Sodini
Abstract: This paper estimates the cross-sectional distribution of Epstein-Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find heterogeneous risk aversion (a standard deviation of 1.06 with a mean/median of 7.57/7.50), time preference rate (standard deviation 6.96% with a mean/median of 5.21/3.15%) and elasticity of intertemporal substitution (standard deviation 0.90 with a mean/median of 0.96/0.50). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households who enter our sample with low wealth.
Keywords: Household Preferences; Risk Aversion; Time Preference Rate
JEL Codes: E21; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| risk aversion (D81) | household characteristics (R20) |
| time preference rate (TPR) (D15) | household characteristics (R20) |
| elasticity of intertemporal substitution (EIS) (D15) | household characteristics (R20) |
| riskier labor income (J39) | risk aversion (D81) |
| lower wealth (D31) | time preference rate (TPR) (D15) |
| lower wealth (D31) | elasticity of intertemporal substitution (EIS) (D15) |
| education level (I24) | wealth accumulation (E21) |
| sector of employment (J45) | portfolio composition (G11) |
| age (J14) | wealth accumulation (E21) |
| age (J14) | risky portfolio share (G11) |
| belief heterogeneity about Sharpe ratio (C46) | model fit (C52) |