Investors' striking migration from growth to value investing over their life cycle

Investors’ striking migration from growth to value investing over their life cycle It happens as they depend less on work, their balance sheets strengthen and their horizons shorten, write Sebastien Betermier, Laurent E. Calvet and Paolo Sodin

Essays on the Consumption and Investment Decisions of Households in the Presence of Housing and Human Capital

This dissertation consists of three essays in which I study the consumption and investment decisions of households in the presence of two major asset classes: housing and human capital.In the first essay, I analyze how the dual consumption-investment nature of housing affects the consumption dynamics of households. A key feature of the housing market is that for most households, the consumption and investment benefits of housing are non-separable. I propose a tractable theoretical framework to understand the impact of this constraint on the consumption allocation of homeowners who would ideally like to own just a fraction of their home. For these homeowners, the relative cost of living in their home is not just the imputed rental cost. It also includes an opportunity cost of having an unbalanced financial portfolio. This cost varies substantially over time, and it is especially high in good times, when available investment opportunities yield high returns and homeowners allocate a high fraction of their wealth to current consumption. As a result, this cost dampens variations in the level of their housing consumption, and it amplifies variations in both their level of non-housing consumption and the composition of their consumption baskets.I then test empirically this theory in the second essay. Using household-level data from the Panel Study of Income Dynamics (PSID), I test the hypothesis that homeowners who face a high opportunity cost choose ceteris paribus a low housing consumption volatility. I also develop a method to identify these constrained homeowners by comparing their characteristics to those of a subset of unconstrained homeowners: the landlords. The results are consistent with the predictions of the model. First, the characteristics of homeowners that determine how constrained they are in the model are strong predictors of those homeowners who choose to be landlords in the data. For example, homeowners with a low level of risk aversion, little value for housing consumption, and a long horizon are relatively more likely to be landlords. Second, I find evidence that the more constrained homeowners adjust their level of housing consumption much less over time.In the third essay, which was developed in collaboration with Thomas Jansson, Christine Parlour, and Johan Walden, we investigate the relationship between workers' labor income and their investment decisions. Using a detailed Swedish data set on employment and portfolio holdings we estimate wage volatility and labor productivity for Swedish industries and, motivated by theory, we show that highly labor productive industries are more likely to pay workers variable wages. We also find that both levels and changes in wage volatility are significant in explaining changes in household investment portfolios. A household going from an industry with low wage volatility to one with high volatility will ceteris paribus decrease its portfolio share of risky assets by 25%, i.e., 7,750 USD. Similarly, a household that switches from a low labor productivity industry to one with high labor productivity decreases its risky asset share by 20%. Our results suggest that human capital risk is an important determinant of household portfolio holdings

Who Are the Value and Growth Investors?

This paper investigates value and growth investing in a large administrative panel of Swedish residents. We show that over the life-cycle, households progressively shift from growth to value as they become older and their balance sheets improve. Furthermore, investors with high human capital and high exposure to macroeconomic risk tilt their portfolios away from value. While several behavioral biases seem evident in the data, the patterns we uncover are overall remarkably consistent with the portfolio implications of risk-based theories of the value premium

Who are the value and growth investors? : [Version April 2014]

This paper investigates the determinants of value and growth investing in a large administrative panel of Swedish residents over the 1999-2007 period. We document strong relationships between a household’s portfolio tilt and the household’s financial and demographic characteristics. Value investors have higher financial and real estate wealth, lower leverage, lower income risk, lower human capital, and are more likely to be female than the average growth investor. Households actively migrate to value stocks over the life-cycle and, at higher frequencies, dynamically offset the passive variations in the value tilt induced by market movements. We verify that these results are not driven by cohort effects, financial sophistication, biases toward popular or professionally close stocks, or unobserved heterogeneity in preferences. We relate these household-level results to some of the leading explanations of the value premium

Investor factors

This paper develops an empirical methodology for extracting pricing factors from investor portfolio data. We apply this approach to an administrative dataset containing the stockholdings of Norwegian individual investors in 1997-2017. A two-factor model, featuring the market portfolio and a long-short portfolio constructed from the holdings of investors sorted by age or wealth, explains both the common variation in portfolio holdings and the cross-section of stock returns. Portfolio tilts toward the investor factor correlate with indebtedness, macroeconomic exposure, gender, and investment experience. Our paper illustrates the benefits of using holdings data for explaining the risk premia of financial assets

Hedging Labor Income Risk

We use a detailed panel data set of Swedish households to investigate the relation between their labor income risk and financial investment decisions. In particular, we relate changes in wage volatility to changes in the portfolio holdings for households that switched industries between 1999 and 2002. We find that households do adjust their portfolio holdings when switching jobs, which is consistent with the idea that households hedge their human capital risk in the stock market. The results are statis- tically and economically significant. A household going from an industry with low wage volatility to one with high volatility will ceteris paribus decrease its portfolio share of risky assets by up to 35%, or USD 15,575.investment decisions; hedging; human capital