Borrowing costs and the demand for equity over the life cycle

• 成果类型: Article
• 署名作者: Davis, Steven J.; Kubler, Felix; Willen, Paul
• 署名单位: University of Chicago; National Bureau of Economic Research; University of Mannheim; Federal Reserve System - USA; Federal Reserve Bank - Boston
• 刊物名称: REVIEW OF ECONOMICS AND STATISTICS
• ISSN/ISSBN: 0034-6535
• DOI: 10.1162/rest.88.2.348
• 发表日期: 2006-05
• 页码: 348-362
• 关键词: portfolio choice; consumption; RISK

摘要

We construct a life cycle model that delivers realistic behavior for both equity holdings and borrowing. The key model ingredient is a wedge between the cost of borrowing and the risk-free investment return. Borrowing can either raise or lower equity demand, depending on the cost of borrowing. A borrowing rate equal to the expected return on equity-which we show roughly matches the data-minimizes the demand for equity. Alternative models with no borrowing or limited borrowing at the risk-free rate cannot simultaneously fit empirical evidence on borrowing and equity holdings.