No. 399 - Labor Income and Risky Assets under Market Incompleteness: Evidence from Italian Data

Temi di discussione (Working papers)
by Giuseppe Grande and Luigi Ventura
March 2001
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Theory suggests that uninsurable income risk induces individuals to accumulate assets as a precautionary reserve of value. Most assets, however, bear rate of return risk, that can be diversified only if every asset is traded by a large number of individuals and arbitrage is frictionless. Using Italian micro-data, we find evidence of income and asset risks that affect consumption. Italian households are particularly well insured against illness but not against job losses. Moreover, we detect a positive, yet weak, effect of asset holding on the variability of consumption streams across households.

Published in 2002 in: Journal of Banking and Finance, v. 26, 2-3, pp. 597-620

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  1. 25 March 2007
    No. 399 - Labor Income and Risky Assets under Market Incompleteness: Evidence from Italian Data
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