The Cross-Section of Household Preferences

Laurent E. Calvet; John Y. Campbell; Francisco Gomes; Paolo Sodini

doi:10.3386/w28788

The Cross-Section of Household Preferences

Laurent E. Calvet, John Y. Campbell, Francisco Gomes & Paolo Sodini

Working Paper 28788

DOI 10.3386/w28788

Issue Date May 2021

Revision Date November 2022

This paper estimates the cross-sectional distribution of Epstein-Zin preferences using the wealth and risky portfolio shares of a large panel of Swedish households. We find heterogeneous risk aversion (a standard deviation of 1.06 with a mean/median of 7.57/7.50), time preference rate (standard deviation 6.96% with a mean/median of 5.21/3.15%) and elasticity of intertemporal substitution (standard deviation 0.90 with a mean/median of 0.96/0.50). Risk aversion and the EIS are only very weakly negatively correlated. We estimate lower risk aversion for households with riskier labor income, and a higher TPR and lower EIS for households who enter our sample with low wealth.

We acknowledge helpful comments on earlier versions of this paper from Stijn van Nieuwerburgh, Jessica Wachter, Stanley Zin, and seminar participants at Arizona State University, EDHEC Business School, ENSAE-CREST, Harvard University, Imperial College London, Stanford University, the University of Michigan, the Vienna Graduate School of Finance, the 2017 American Economic Association meeting, the UCLA Anderson Fink Center Conference on Financial Markets, the 2019 FMND Workshop, the 2019 NBER Asset Pricing Summer Institute, the 2021 London Seminar on Micro and Macro Implications of Household Behaviour and Financial Decision-Making, and the 2021 NBER Big Data Conference. We thank the Sloan Foundation for financial support to John Campbell, and Azar Aliyev, Nikolay Antonov, Huseyin Aytug, Yapei Zhang and Yuhuang Sun for able and dedicated research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

John Y. Campbell
Full disclosure of all outside activities is available at https://scholar.harvard.edu/campbell/outsideactivities.
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- May 11, 2021

The Cross-Section of Household Preferences

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