Precautionary Wealth and Portfolio Allocation: Evidence from Canadian Microdata

Social and Economic Dimensions of an Aging Population Research Papers from McMaster University

Abstract: This paper estimates the effect of labour income uncertainty on financial wealth and portfolio allocation using two data sources. Wealth and portfolio choice information is obtained from the master files of the new Canadian Survey of Financial Security 1999 (SFS). Labour income risk proxies are constructed for each specified industry group (consistent with the SFS classification) using the Canadian Survey of Labour and Income Dynamics (SLID) between 1996 and 2001. The empirical results suggest the presence of a strong precautionary saving motive among Canadian households. Furthermore, the level of precautionary funds seems to decline when households have relatively unrestricted access to credit markets. The demand for risky and liquid assets does not appear to be affected by labour income uncertainty even after accounting for accessibility to credit markets. However the data suggest a significant hedging motive among the self employed.

Keywords: wealth; portfolio allocation; saving; SLID; SFS (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2004-05
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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