Marriage, Housing, and Portfolio Choice: A Test of Grossman-Laroque
نویسندگان
چکیده
The Grossman and Laroque (1990) theory of adjustment costs in consumption has been widely applied to analyze consumption and nancial market behavior. An important prediction of such adjustment cost models is that individuals who have recently purchased a house are more risk averse than those who have lived in their homes for a long time. In this paper, we test this prediction using an instrumental variables strategy. We use a set of control groups to show that the timing of changes in marital status generates exogenous variation in home tenure conditional on age and wealth. Using these marital shocks as instruments, we nd that the average investor reallocates $1,500 (1.3%) from safe assets to stocks per year spent in a house, holding xed wealth. Auxiliary tests indicate that this reallocation e¤ect is not driven by home equity accumulation or changes in risk exposure. We conclude that adjustment costs in consumption have substantial e¤ects on risk preferences and portfolio choice. E-mail addresses: [email protected] and [email protected]. We would like to thank Gary Chamberlain, Tom Davido¤, Elhanan Helpman, Larry Katz, Miklos Koren, Hanno Lustig, Jonah Rocko¤, Jesse Shapiro, Todd Sinai, Jeremy Stein, Moto Yogo, numerous seminar participants, and especially John Campbell and Drew Fudenberg for helpful comments. Kory Kroft and Ankur Patel provided capable research assistance. We are grateful for funding from the National Science Foundation, Social Science Research Council, and the Institute for Humane Studies.
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تاریخ انتشار 2006