%0 Thesis
%9 Doctoral
%A Angrisani, M.
%B Department of Economics
%D 2011
%F discovery:1324511
%I UCL (University College London)
%P 191
%T Essays on household finance
%U https://discovery.ucl.ac.uk/id/eprint/1324511/
%X This thesis comprises three essays on household finance. It provides a comprehensive  investigation of the role of heterogeneity in household circumstances to explain observed  saving and investment decisions and to define a unified analytical framework to study  such behaviours. Particular emphasis is placed on idiosyncratic, non-tradeable and non-  diversifiable risks as determinants of financial choices over the life cycle. Another salient  feature of the present contributions is their focus on retirement age individuals. In the  context of the aging population, this large cohort has received particular attention given  its relatively short retirement planning horizon, its greater vulnerability to market returns  and shocks to retirement wealth, and its rising exposure to health risk. Advancing our  understanding of middle-aged individuals' saving and investment decisions is essential  towards the design of effective interventions aimed at enhancing their financial security at  older ages.  In Chapter 1 I provide a summary and overview of the thesis.  In Chapter 2 I empirically investigate whether, when markets are incomplete, the  presence of idiosyncratic uninsurable and non-diversifiable risks induces more prudent investment strategies and causes individuals to hold safer portfolios. In particular, I consider  public pension uncertainty stemming from unexpected earnings variation as a source of  background risk for workers before retirement. I find evidence of risk substitutability, in  that individuals facing higher pension variability (background risk) reduce their exposure  to stock market risks (endogenously controlled risks).  In view of these findings, I develop in Chapter 3 a life-cycle model that reproduces  the main sources of uncertainty confronted by households on the verge of retirement.  These include unexpected earnings and pension variations, adverse health shocks, medical  expenditure risk and survival uncertainty. I use this rich analytical set-up to study optimal  retirement saving and portfolio choices and to evaluate the impact on household welfare  of tax-deferred retirement accounts. The model generates plausible wealth accumulation  and portfolio patterns. The degree of exposure to background risks, its evolution over  time and interaction with tax incentives and liquidity constraints on retirement savings  play a major role in shaping lifetime investment behaviour.  In Chapter 4 I examine the effect of cognition and numeracy on a wide range of household financial outcomes. The results suggest that the degree of sophistication required  to access more complex financial products may represent a severe barrier for less skilled  individuals and that simple preference heterogeneity is not sufficient to explain observed  differences in portfolio choice among investors with different abilities. Hence, policy interventions aimed at simplifying financial decision-making should be conceived as attempts  to address informational or market failures. Such measures might eliminate or reduce  the barriers preventing those with cognitive impairment from accessing certain investment  opportunities and attaining the desired financial security.
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