This paper estimates the cross-sectional distribution of Epstein-Zin preference parameters in a large administrative panel of Swedish households. We consider life-cycle model of saving and portfolio choice that incorporates risky labor income, safe and risky financial assets inside and outside retirement accounts, and real estate. We study middle-aged stock-owning households grouped by education, industry of employment, and birth cohort as well as by their accumulated wealth and risky portfolio shares. We find some heterogeneity in risk aversion (a standard deviation of 0.47 around a mean of 5.24 and median of 5.30) and considerable heterogeneity in the time preference rate (standard deviation 6.0% around a mean of 6.2% and median of 4.1%) and elasticity of intertemporal substitution (standard deviation 0.96 around a mean of 0.99 and median of 0.42). Risk aversion and the EIS are almost cross-sectionally uncorrelated, in contrast with the strong negative correlation that we would find if households had power utility with heterogeneous risk aversion. The TPR is weakly negatively correlated with both the other parameters. We estimate lower risk aversion for households with riskier labor income and higher levels of education, and a higher TPR and lower EIS for households who enter our sample with low initial wealth.
Authors
Laurent E. Calvet, John Y. Campbell, Francisco Gomes, Paolo Sodini
- Acknowledgements & Disclosure
- We acknowledge helpful comments on earlier versions of this paper from Stijn van Nieuwerburgh, Jessica Wachter, Stanley Zin, and seminar participants at EDHEC Business School, ENSAE-CREST, the University of Michigan, Stanford University, the 2017 American Economic Association meeting, the Vienna Graduate School of Finance, Arizona State University, Harvard University, the UCLA Anderson Fink Center Conference on Financial Markets, the 2019 FMND Workshop, Imperial College London, the 2019 NBER Asset Pricing Summer Institute, and the 2021 London Seminar on Micro and Macro Implications of Household Behaviour and Financial Decision-Making. We thank the Sloan Foundation for financial support to John Campbell, and Azar Aliyev, Nikolay Antonov, and Huseyin Aytug for able and dedicated research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. John Y. Campbell Full disclosure of all outside activities is available at https://scholar.harvard.edu/campbell/outsideactivities.
- DOI
- https://doi.org/10.3386/w28788
- Published in
- United States of America
