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Health and (other) Asset Holdings

Author

Listed:
  • Julien Hugonnier

    (University of Lausanne and Swiss Finance Institute)

  • Florian Pelgrin

    (University of Lausanne and CIRANO)

  • Pascal St-Amour

    (University of Lausanne, Swiss Finance Institute, CIRANO and CIRPEE)

Abstract
The empirical literature on the asset allocation and medical expenditures of U.S. households consistently shows that risky portfolio shares are increasing in both wealth and health whereas health investment shares are decreasing in these same variables. Despite this evidence, most of the existing models treat financial and health-related choices separately. This paper bridges this gap by proposing a tractable framework for the joint determination of optimal consumption, portfolio and health investments. We solve for the optimal rules in closed form and show that the model can theoretically reproduce the empirical facts. Capitalizing on this closed-form solution, we perform a structural estimation of the model on HRS data. Our parameter estimates are reasonable and confirm the relevance of all the main characteristics of the model.

Suggested Citation

  • Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2009. "Health and (other) Asset Holdings," Swiss Finance Institute Research Paper Series 09-18, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp0918
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    References listed on IDEAS

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    More about this item

    Keywords

    Portfolio; Health Investment; Mortality Risk.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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