Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2011-02-17
Number: 11-038/2/DSF13
Author-Name: Yvonne Adema
Author-Workplace-Name: Erasmus University Rotterdam, and Netspar
Author-Name: Jan Bonenkamp
Author-Workplace-Name: CPB Netherlands Bureau for Economic Policy Analysis, and Netspar
Author-Name: Lex Meijdam
Author-Workplace-Name: University of Tilburg, and Netspar
Title: Retirement Flexibility and Portfolio Choice in General Equilibrium
Abstract: This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model of a closed economy. Retirement flexibility is often seen as a hedge against capital market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened - and under some conditions even turned around - if not only capital market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure.
Classification-JEL: E21, G11, J26
Keywords: portfolio choice, retirement (in)flexibility, productivity and depreciation risk, intratemporal substitution, general equilibrium
File-Url: https://papers.tinbergen.nl/11038.pdf
File-Format: application/pdf
File-Size: 532396 bytes
Handle: RePEc:tin:wpaper:20110038