Essays on Portfolio Choice and Wealth Inequality

This doctoral thesis consists of three self-contained chapters. In chapter 1, I analyze a model of saving and portfolio choice and show that jointly matching saving, debt taking and housing decisions over the life-cycle also enables a good fit of portfolio choice patterns over the wealth distribution. In particular, the crowding-out effect of housing and high debt costs depress the weight of stock market investments for less wealthy home-owners, while these effects gradually disappear for the rich, implying that the optimal risky share increases in wealth. In chapter 2, I study how distant saving targets such as buying a house or early retirement affect welfare and optimal consumption and portfolio choices today in the context of a theoretical model. I prove that the agent can optimally think of her savings as being distributed among several pockets linked to separate saving goals. The relative weight of these pockets and the corresponding risky shares depend on the expected times when saving targets are reached and the additional utility they provide when fulfilled. In chapter 3, we investigate if preference heterogeneity and a detailed representation of income risk is sufficient to accurately match the empirical schedules of portfolio choice over the whole wealth distribution. We find that the answer is yes, and the solution also provides a realistic degree of wealth inequality.