Unemployment and portfolio choice: Does persistence matter?

We use a life cycle model of consumption and portfolio choice to study the effects of social security on the investment decisions of households for the European case. Our model is mainly based on the one developed by Cocco, Gomes, and Maenhout (2005). We extend it by unemployment risk using Markov chains to model the transition between different employment states. In contrast to most models in the life cycle literature, our model allows for three different states, namely employment, short-term as well as long-term unemployment. This allows us to examine the effects of persistence in the unemployment process on portfolio choice. Our main findings are, first, that in case of short-term unemployment only, social security systems as those established in the EU are able to offset the negative impact of unemployment risk on the portfolio-share invested in risky assets. Second, the simulation results reveal that when allowing for long-term unemployment the equity-share is suppressed, especially for young investors. We show that this negative effect of unemployment is mainly driven by its persistence

Unemployment and Portfolio Choice: Does Persistence Matter?

We use a life cycle model of consumption and portfolio choice to study the effects of social security on the investment decisions of households for the European case. Our model is mainly based on the one developed by Cocco, Gomes, and Maenhout (2005). We extend it by unemployment risk using Markov chains to model the transition between different employment states. In contrast to most models in the life cycle literature, our model allows for three different states, namely employment, short-term as well as long-term unemployment. This allows us to examine the effects of persistence in the unemployment process on portfolio choice. Our main findings are, first, that in case of short-term unemployment only, social security systems as those established in the EU are able to offset the negative impact of unemployment risk on the portfolio-share invested in risky assets. Second, the simulation results reveal that when allowing for long-term unemployment the equity-share is suppressed, especially for young investors. We show that this negative effect of unemployment is mainly driven by its persistence

Makroökonomie und Finanzmärkte: Essays zu Mikro-Makro Verflechtungen

The Global Financial Crisis has forcefully demonstrated that financial systems and the real economy are closely related. Moreover, it has shown that microeconomic structures matter for macroeconomic stability. This thesis analyzes micro-macro linkages between the real and financial economy based on four essays. The first essay studies whether the mere presence of large banks can affect macroeconomic outcomes. Essay 2 is devoted to the effects of different forms of international financial integration on banking sector concentration and market power. The third essay analyzes how international financial integration influences granular effects from the banking sector. Essay 4 shifts the perspective and studies how increased unemployment risks since the crisis affect households’ portfolio equity shares.Die globale Finanz- und Wirtschaftskrise hat verdeutlicht, dass enge Verflechtungen zwischen Real- und der Finanzwirtschaft bestehen. Darüber hinaus hat die Krise gezeigt, dass einzelwirtschaftliche Strukturen eine wichtige Rolle für die Stabilität der Gesamtwirtschaft spielen. In dieser Dissertation werden die Verflechtungen zwischen einzel- und gesamtwirtschaftlicher Ebene, sowie zwischen dem Finanzsektor und der Realwirtschaft anhand von vier Essays untersucht. Der erste Essay analysiert, welche Rolle die Präsenz großer Banken bzw. eine hohe Marktkonzentration im Bankensektor für gesamtwirtschaftliche Größen spielt. Der zweite Essay widmet sich den Auswirkungen verschiedener Formen der Finanzmarktintegration auf die Marktkonzentration und die Marktmacht im Bankensektor. Im dritten Essay wird untersucht, inwiefern der Grad der Finanzmarktoffenheit einer Volkswirtschaft die Verbindung zwischen bankspezifischen Schocks und Gesamtwirtschaft beeinflusst. Der vierte Essay ändert den Blickwinkel und analysiert, wie sich ein erhöhtes Risiko der Arbeitslosigkeit auf den Aktienanteil im Portfolio privater Haushalte auswirkt

Post-crisis banking regulation: evolution of economic thinking as it happened on Vox

This eBook collects some of the best Vox columns on financial regulations, starting with the fundamentals of financial regulations, moving on to bank capital and the Basel regulations, and finishing with the wider considerations of the regulatory agenda and the political dimension. Collecting columns from over the past six years, this eBook maps the evolution of leading thought on banking regulation