Journal of Financial Economics Vol. 105 No. 3 2012

Hedging labor income risk

Sebastien Betermier¹; Thomas Jansson²; Christine Parlour³; Johan Walden

¹ McGill University · ² Swedish National Bank · ³ University of California, Berkeley

Abstract

We use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and financial investment decisions. In particular, we relate changes in wage volatility to changes in the portfolio holdings for households that switched industries between 1999 and 2002. We find that households do adjust their portfolio holdings when switching jobs, which is consistent with the idea that households hedge their human capital risk in the stock market. The results are statistically and economically significant. A household going from an industry with low wage volatility to one with high volatility ceteris paribus decreases its portfolio share of risky assets by up to 35%, or $15,575.

DOI

10.1016/j.jfineco.2012.05.001

Volume

105

Issue

3

Pages

622-639

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓