In this paper, we extend the static portfolio choice problem with a small background risk to the case of small partially correlated background risks. We show that respecting the theories under which risk substitution appears, except for the independence of background risk, it is perfectly...

Exploiting French survey data, we empirically ascertain whether earnings uncertainty and borrowing constraints decrease households demand for risky assets, consistent with theoretical predictions. A major empirical problem is the potential endogeneity bias of income risk, as more risk averse...

Using the Household Finance and Consumption Survey (HFCS), a large micro-level dataset on households’ wealth in fifteen euro area countries, this paper explores how households allocate their assets. We derive stylized facts on asset participation as well as levels of asset holdings and...