Logo
Munich Personal RePEc Archive

Strategic Consumption-Portfolio Rules and Precautionary Savings with Informational Frictions

Luo, Yulei (2014): Strategic Consumption-Portfolio Rules and Precautionary Savings with Informational Frictions.

Warning
There is a more recent version of this item available.
[thumbnail of MPRA_paper_58077.pdf]
Preview
PDF
MPRA_paper_58077.pdf

Download (364kB) | Preview

Abstract

This paper provides a tractable continuous-time CARA-Gaussian framework to explore how the interactions of risk aversion and induced uncertainty due to informational frictions determine strategic consumption-portfolio rules, precautionary savings, and consumption dynamics in the presence of uninsurable labor income. Specifically, after solving the model explicitly, we explore the relative importance of the two types of induced uncertainty: (i) model uncertainty due to robustness and (ii) state uncertainty due to limited information-processing capacity as well as risk aversion in determining asset allocation, precautionary savings, and consumption dynamics. Finally, we discuss how the separation between risk aversion and intertemporal substitution affects strategic asset allocation and precautionary savings.

Available Versions of this Item

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.