Creator: Guvenen, Fatih, Schulhofer-Wohl, Sam, Song, Jae, and Yogo, Motohiro Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 546 Abstract:
The magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro, labor, and ﬁnancial economics. Using administrative data, we document how the aggregate risk exposure of individual earnings to GDP and stock returns varies across gender, age, the worker’s earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, aggregate risk exposure is higher for males, younger workers, and those in construction and durable manufacturing. At the top of the earnings distribution, aggregate risk exposure is higher for older workers and those in ﬁnance. Workers in larger employers are less exposed to aggregate risk, but they are more exposed to a common factor in employer-level earnings, especially at the top of the earnings distribution. Within an employer, higher-paid workers have higher exposure to employer-level risk than lower-paid workers.
学科: D31 - Personal Income, Wealth, and Their Distributions and G11 - Portfolio Choice; Investment Decisions
Creator: Koijen, Ralph S. J., Nieuwerburgh, Stijn van, and Yogo, Motohiro Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 499 Abstract:
We develop a pair of risk measures, health and mortality delta, for the universe of life and health insurance products. A life-cycle model of insurance choice simplifies to replicating the optimal health and mortality delta through a portfolio of insurance products. We estimate the model to explain the observed variation in health and mortality delta implied by the ownership of life insurance, annuities including private pensions, and long-term care insurance in the Health and Retirement Study. For the median household aged 51 to 57, the lifetime welfare cost of market incompleteness and suboptimal choice is 3.2% of total wealth.
关键词: Health insurance, Portfolio choice, Life insurance, Life-cycle model, and Annuities 学科: G11 - Portfolio Choice; Investment Decisions, D14 - Household Saving; Personal Finance, I13 - Health Insurance, Public and Private, and D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Creator: Koijen, Ralph S. J. and Yogo, Motohiro Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 500 Abstract:
During the financial crisis, life insurers sold long-term policies at deep discounts relative to actuarial value. The average markup was as low as −19 percent for annuities and −57 percent for life insurance. This extraordinary pricing behavior was due to financial and product market frictions, interacting with statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability. We identify the shadow cost of capital through exogenous variation in required reserves across different types of policies. The shadow cost was $0.96 per dollar of statutory capital for the average company in November 2008.
关键词: Capital regulation, Leverage, Life insurance, Annuities, and Financial crisis 学科: G01 - Financial Crises, G22 - Insurance; Insurance Companies; Actuarial Studies, and G28 - Financial Institutions and Services: Government Policy and Regulation
Creator: Koijen, Ralph S. J. and Yogo, Motohiro Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 505 Abstract:
Liabilities ceded by life insurers to shadow reinsurers (i.e., less regulated and unrated off-balance-sheet entities) grew from $11 billion in 2002 to $364 billion in 2012. Life insurers using shadow insurance, which capture half of the market share, ceded 25 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 53 percentage points (or 3 rating notches) and increases default probabilities by a factor of 3.5. We develop a structural model of the life insurance industry and estimate the impact of current policy proposals to limit or eliminate shadow insurance. In the counterfactual without shadow insurance, the average company using shadow insurance would raise prices by 10 to 21 percent, and annual life insurance underwritten would fall by 7 to 16 percent for the industry.
关键词: Demand estimation, Life insurance industry, Capital regulation, Reinsurance, and Regulatory arbitrage 学科: L11 - Production, Pricing, and Market Structure; Size Distribution of Firms, L51 - Economics of Regulation, G22 - Insurance; Insurance Companies; Actuarial Studies, and G28 - Financial Institutions and Services: Government Policy and Regulation
Creator: Koijen, Ralph S. J. and Yogo, Motohiro Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 510 Abstract:
We develop an asset pricing model with flexible heterogeneity in asset demand across investors, designed to match institutional and household holdings. A portfolio choice model implies characteristics-based demand when returns have a factor structure and expected returns and factor loadings depend on the assets' own characteristics. We propose an instrumental variables estimator for the characteristics-based demand system to address the endogeneity of demand and asset prices. Using U.S. stock market data, we illustrate how the model could be used to understand the role of institutions in asset market movements, volatility, and predictability.
关键词: Institutional investors, Liquidity, Asset pricing model, Portfolio choice, and Demand system 学科: G23 - Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors and G12 - Asset Pricing; Trading Volume; Bond Interest Rates