Asset Accumulation, Information, and the Life Cycle

Abstract

Empirical tests of the life cycle model have focused on its implications for the level of a household's total net worth and paid little attention to changes in portfolio composition over the life cycle.In this paper, we examine a new survey of the asset holdings of 6,010 U.s households and show that there is a pronounced life-cycle pattern to both the number and value of assets held by U.S. households.Direct survey evidence suggests that incomplete information is a significant determinant of household portfolio composition.We test the hypothesis that information about investment opportunities arrives stochastically over time, estimating a Poisson model for the arrival of new information.

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