Portfolio Choice Over the Life Cycle: A Survey

2020 ◽  
Vol 12 (1) ◽  
pp. 277-304
Author(s):  
Francisco Gomes
Keyword(s):  
Life Cycle ◽  
Portfolio Choice ◽  
Asset Allocation ◽  
Borrowing Constraints ◽  
Future Research ◽  
Individual Investors ◽  
Critical Survey ◽  
Household Heterogeneity ◽  
Allocation Decisions

Life-cycle portfolio choice models capture the role of human capital, housing, borrowing constraints, background risk, and several other crucial ingredients for determining the savings and investment decisions of households. Over the last two decades, this literature has provided us with multiple insights regarding the asset allocation decisions of individual investors. This article provides a critical survey of this research and suggests directions for future research, namely incorporating additional forms of household heterogeneity.

scholarly journals Hyperbolic discounting and life-cycle portfolio choice

2015 ◽  
Vol 14 (4) ◽  
pp. 492-524 ◽  
Author(s):  
DAVID LOVE ◽  
GREGORY PHELAN
Keyword(s):  
Life Cycle ◽  
Stock Market ◽  
Portfolio Choice ◽  
Asset Allocation ◽  
Financial Literacy ◽  
Hyperbolic Discounting ◽  
Fixed Cost ◽  
Future Earnings ◽  
Financial Wealth ◽  
The Impact

AbstractThis paper studies how hyperbolic discounting affects stock market participation, asset allocation, and saving decisions over the life cycle in an economy with Epstein–Zin preferences. Hyperbolic discounting affects saving and portfolio decisions through at least two channels: (1) it lowers desired saving, which decreases financial wealth relative to future earnings; and (2) it lowers the incentive to pay a fixed cost to enter the stock market. We find that hyperbolic discounters accumulate less wealth relative to their geometric counterparts and that they participate in the stock market at a later age. Because they have lower levels of financial wealth relative to future earnings, hyperbolic discounters who do participate in the stock market tend to hold a higher share of equities, particularly in the retirement years. We find that increasing the elasticity of intertemporal substitution, holding risk aversion constant, greatly magnifies the impact of hyperbolic discounting on all of the model's decision rules and simulated levels of participation, allocation, and wealth. Finally, we introduce endogenous financial knowledge accumulation and find that hyperbolic discounting leads to lower financial literacy and inefficient stock market investment.

How important are early investment experiences on subsequent investment decisions? A laboratory experiment on asset allocation

2015 ◽  
Vol 41 (6) ◽  
pp. 582-590 ◽  
Author(s):  
Dimitra Papadovasilaki ◽  
Federico Guerrero ◽  
James Sundali ◽  
Gregory Stone
Keyword(s):  
Asset Allocation ◽  
Design Methodology ◽  
Investment Decisions ◽  
Portfolio Allocation ◽  
Investment Behavior ◽  
Content Type ◽  
Aggregate Shocks ◽  
Riskless Asset ◽  
Allocation Decisions

Purpose – The purpose of this paper is to examine the influence of early investment experiences on subsequent portfolio allocation decisions in a laboratory setting. Design/methodology/approach – In an experiment in which the task consisted of allocating a portfolio between a risky and riskless asset for 20 periods, two groups of subjects were confronted with either a market boom or bust in the initial four periods. Findings – The findings suggest that after controlling for demographic characteristics, the timing of a boom or bust during the investment lifecycle matters greatly. Subjects that faced a bust early in their investment lifecycle held less of the risky asset in subsequent periods compared to subjects who experienced an early boom. Originality/value – To the best of the authors knowledge this is the first laboratory study investigating the role of early aggregate shocks on subsequent investment behavior.

scholarly journals The Asset Allocation Decisions Of Individual Investors

2011 ◽  
Vol 4 (8) ◽  
Author(s):  
Marta Alvarez ◽  
Javier Rodriguez
Keyword(s):  
Stock Market ◽  
Survey Data ◽  
Asset Allocation ◽  
Individual Investors ◽  
General State ◽  
Market Conditions ◽  
Allocation Decisions

The asset allocation decisions of individual investors are evaluated using survey data. By applying a methodology based on attribution returns we are able to assess the forecasting ability of a group of well-informed individual investors. We find that, if this group of investors follows their survey answers with investment actions, they add value to their overall wealth by actively managing their portfolios. These investors demonstrate good forecasting ability by effectively shifting their portfolios allocations. Finally, using two different time partitions, based on the general state of the stock market, we find that this group of investors managed their portfolios better during poor market conditions.

scholarly journals Understanding the Life Cycles of Entrepreneurial Teams and Their Ventures: An Agenda for Future Research

2020 ◽  
pp. 104225872097838
Author(s):  
Holger Patzelt ◽  
Rebecca Preller ◽  
Nicola Breugst
Keyword(s):  
Life Cycle ◽  
Life Cycles ◽  
Team Formation ◽  
Future Research ◽  
Entrepreneurial Teams ◽  
The Past ◽  
Entrepreneurial Team ◽  
Over Time

While research on entrepreneurial teams has flourished over the past two decades, it has mainly taken a static perspective, neglecting the developments both teams and their ventures undergo over time. To address this issue, we develop a “double life cycle framework” covering entrepreneurial teams’ formation, collaboration, and dissolution phases as well as potential nonlinear sequences of these phases. While this team life cycle is embedded in the venture life cycle, both life cycles can progress independently. We offer research suggestions on entrepreneurial team formation, collaboration, and dissolution in each venture phase, highlighting the role of entrepreneurial teams in advancing their ventures.

scholarly journals Quantitative model for impact of behavioral biases on asset allocation decisions: a case study of investors in UAE

2021 ◽  
Author(s):  
Ashutosh Pradhan
Keyword(s):  
Asset Allocation ◽  
Cognitive Biases ◽  
Quantitative Model ◽  
Individual Investors ◽  
Research Approach ◽  
Behavioral Biases ◽  
Cognitive Limitations ◽  
The World ◽  
The Impact ◽  
Allocation Decisions

AbstractIndividuals are expected to be rational and follow the approach prescribed under different traditional finance theories while constructing portfolios. In reality, studies from different parts of the world show that individuals do not act rationally due to cognitive limitations and influence of emotions and feelings. Additionally, in quite a few countries, religion plays an important role in decision-making. As a result, individuals make suboptimal decisions, like holding poorly diversified portfolios, excessive or minimal trading, and taking excessive or too little risk with their portfolios. The analysis of impact of behavioral biases and religiosity has not been done in the context of individual investors living in UAE, which this paper addresses. A survey questionnaire was administered to Arab nationals living in UAE. Data of 129 individuals were analyzed. The findings showed that these investors were influenced by emotional and cognitive biases, had good knowledge of religiosity, & placed them as important. This behavior is consistent with investor behavior observed in the rest of the world. Subsequent to these empirical findings, the paper has developed a quantitative model to predict the impact of behavioral biases and religiosity on asset allocation decisions. The research approach used for developing the quantitative model can be replicated by researchers from across the world tailored to their own regions.

scholarly journals Investor Activity in Chinese Financial Institutions: A Precursor to Economic Sustainability

2021 ◽  
Vol 13 (21) ◽  
pp. 12267
Author(s):  
Rob Kim Marjerison ◽  
Chungil Chae ◽  
Shitong Li
Keyword(s):  
Decision Making ◽  
Financial Institutions ◽  
Asset Allocation ◽  
Information Acquisition ◽  
Rapid Development ◽  
Secondary Data ◽  
Future Research ◽  
Individual Investors ◽  
Market Information ◽  
Investment In China

One requirement for sustainable economic development is established, trusted, and utilized financial institutions to facilitate investment. The rapid development of financial markets in China, combined with the recency and magnitude of middle-class wealth, has resulted in a rapidly changing investment landscape, as well as changes in people’s investing activities. The extent to which economic growth is sustainable will depend, at least in part, on how financial institutions are perceived, as well as the extent to which they are utilized. The objective of this study was to examine the investment behaviors of individual investors as a way to ascertain the perceived level of trust and stability in the relatively recently developed financial institutions. The influence of market information acquisition on asset allocation and value investment in China was analyzed. This study used secondary data from a China securities corporation from previous research. The analyses utilized the general decision-making style test to assess respondents’ decision-making models and quantitative research methodology culminating in the use of correlation analysis. The results indicated that the acquisition of market information had a positive correlation with the number of assets and investment portfolios. Practical implications and suggestions for future research are provided. The results may be of interest to individual and institutional investors in China, as well as those with an interest in current trends in market information acquisition, asset allocation, and value investment in China.

Conclusions

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Life Cycle ◽  
Borrowing Constraints ◽  
Future Research ◽  
Home Production ◽  
Financial Behaviors ◽  
Separable Preferences ◽  
Income Model ◽  
Standard Framework ◽  
Basic Version

The final chapter summarizes the material covered by the book, offering our perspectives on areas of consent, disagreement, and future research. The book analyzes how consumers respond to changes in their economic environment and react to risks they face during the life cycle. In addressing these issues, the basic life-cycle permanent-income model is augmented with other significant features of consumers’ preferences and environment: precautionary motives for saving, borrowing constraints, life span uncertainty, intergenerational transfers, non-separability between consumption and leisure, habits, and financial sophistication. By and large, one can reconcile some puzzling facts present in the empirical data by means of relatively modest modifications of the basic version of the model, such as provision for home production and non-separable preferences between consumption and leisure. However, in order to explain other “anomalies” and “puzzles” observed in individuals’ actual saving and financial behaviors, more important modifications to the standard framework are required.

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