Demand for Risky Assets with Uncertain Labor Income : A Panel Study (in Korean)

In proper risk aversion theory developed by Kimball(1993), investors are less willing to take one risk in the presence of another independent risk. Based on the theoretical implication, this study using Korea Household Penal Survey(KHPS) investigates the impact of independent income risk on the demand for risky assets. A Tobit model is estimated and the main findings are as follows: Firstly, Korean households decrease the demand for risky assets with higher income risk. They also increase the demand for risky assets as wealth level increases. These findings are consistent with the von Neumann-Morgenstern utility function of standard risk aversion, that is, decreasing absolute risk aversion and decreasing absolute prudence. Secondly, younger households have relatively stronger preference for risky assets than older households. Thirdly, the estimation results show that households with higher portion of risky assets in their portfolio are more sensitive to income risk than those with lower portion. This implies that Korean households may change the demand for risky assets in a nonlinear pattern. Finally, Korean self-employed households hold assets not only directly but through their business. As a result, the impact of income risk on the demand for risky assets is overestimated. Whether the findings of the present paper may be broadly supported by other kinds of survey data is left for the future studies.