# Methodology: state-of-the-art

Chapter

## Abstract

In the previous chapter, the object of the present investigation - the Swiss system of old-age provision - was introduced and a particular problem related to this provision system was derived as a research motivation. This problem is essentially represented by the question whether it would be beneficial for Swiss workers if specific elements of choice were introduced to the second pillar of the Swiss system of old-age provision. An economic methodology is now sought to study this issue. This is the purpose of the present chapter.

## Keywords

Stock Market Stock Return Dividend Yield Portfolio Choice Equity Share
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## References

- 1.See e.g. Elton et al. (2003) for a textbook treatment.Google Scholar
- 2.The review closely follows Wallmeier/ Zainhofer (2007).Google Scholar
- 3.See e.g. Danthine/ Donaldson (2005), p. 76–77.Google Scholar
- 4.E.g. Campbell/ Viceira (1999).Google Scholar
- 5.E.g. Xia (2001).Google Scholar
- 6.E.g. Viceira (2001).Google Scholar
- 7.See e.g. Merton (1969), Merton (1971), Brennan (1998), Brennan/Xia (2002).Google Scholar
- 8.E.g. Gollier/ Zeckhauser (2002).Google Scholar
- 9.E.g. Kim/ Omberg (1996), Jagannathan/Kocherlakota (1996), Campbell/Viceira (2002) ch. 2.2.Google Scholar
- 10.E.g. Campbell/ Viceira (1999).Google Scholar
- 11.E.g. Bodie et al. (1992), Chan/Viceira (2000).Google Scholar
- 12.E.g. Lax (2001a), Lax (2001b).Google Scholar
- 13.E.g. Campbell/ Viceira (1999).Google Scholar
- 14.See e.g. Brennan et al. (1997), Campbell/Viceira (1999), Campbell et al. (2000).Google Scholar
- 15.See e.g. Xia (2001), Brandt et al. (2003).Google Scholar
- 16.See e.g. Barberis (2000).Google Scholar
- 17.See e.g. Campbell/ Viceira (2002) ch. 3.Google Scholar
- 18.See e.g. Viceira/ Chacko (2005), Campbell/Viceira (2002) ch. 5.4.Google Scholar
- 19.Barberis (2000) e.g. considers both cases, with and without rebalancing.Google Scholar
- 20.Heaton/ Lucas (2000) cite several studies on these trading restraints.Google Scholar
- 21.See e.g. Viceira (2001).Google Scholar
- 25.See e.g. Hubbard et al. (1995), Carroll/Samwick (1997), Gourinchas/Parker (2002).Google Scholar
- 26.See e.g. French (2005) for a life-cycle model of savings (but excluding portfolio choice) with endogenous labor supply and retirement.Google Scholar
- 28.See chapter 4 below, or Carroll (2002a) for details.Google Scholar
- 29.See e.g. Bodie (2003).Google Scholar
- 31.See also Jagannathan/ Kocherlakota (1996).Google Scholar
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- 37.See Guiso et al. (2002), Dynan et al. (2003), Carroll (2002c), Hurd (2002), Curcuru (2003), Heaton/Lucas (2000) and Davis et al. (2004) for further empirical evidence on household portfolio choice.Google Scholar
- 38.Haliassos/ Michaelides (2002), p. 55.Google Scholar
- 39.The model by Campbell/ Viceira (2002) is a simplified version of Campbell et al. (1999) used for illustrative purposes in their volume on long term portfolio choice The only difference to Campbell et al. (1999) is the assumption that all wealth in the illiquid retirement account is invested in the riskfree asset and that there is no fixed cost of stock market participation.Google Scholar
- 40.Campbell et al. (1999) set the risk aversion parameter to 5, whereas we used a value of 7. Thus, the set-ups are not perfectly comparable.Google Scholar
- 41.In this case, Campbell et al. (1999) reduce the contribution rate from 10% to 6% in order to keep the average replacement rate at the same level as before.Google Scholar
- 42.Davis et al. (2004), p. 20.Google Scholar
- 43.Cochrane (1997), p. 19.Google Scholar
- 44.Cochrane (1997), p. 20.Google Scholar
- 45.Cochrane (1997) and Campbell (2003) review this literature.Google Scholar
- 51.Gomes/ Michaelides (2003), p. 5.Google Scholar
- 53.See also Campbell/ Viceira (2002), pp. 42–44.Google Scholar
- 54.Actually, Gomes/ Michaelides (2005) compute transition distributions, but they also carry out regular Monte Carlo simulations; see their footnote 12.Google Scholar
- 56.Bodie et al. (1992) and Bodie et al. (2004) are not directly comparable to the models reviewed here: Bodie et al. (1992) is a continuous time model without borrowing restrictions. The wage rate is assumed to be perfectly positively correlated with the return on the risky asset in the risky wage regime and labor income is presumed to be insurable. Similarly, in Bodie et al. (2004) asset holdings are not constrained and borrowing against future labor income is possible for the greater part of the analysis. If borrowing against future labor income is not permitted, they are able to derive explicit solutions for consumption and labor choice, but not for portfolio choice.Google Scholar
- 58.See, e.g., Yao/ Zhang (2005).Google Scholar
- 59.The bequest motive is different from the one in earlier models in that the investor intends to bequeath an annuity over a given horizon to provide for the beneficiary’s consumption and housing. For details, see Yao/ Zhang (2005), p. 7.Google Scholar
- 60.Lynch/ Tan (2004), p. 2.Google Scholar
- 61.Lynch/ Tan (2004), p. 9.Google Scholar

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