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This paper uses panel data from the Health and Retirement Study to estimate the
relationship between measures of labor supply flexibility and portfolio-choice decisions
by utility-maximizing individuals. Seminal research on portfolio decisions over the lifecycle,
and recent research on stochastic dynamic programming models with endogenous
labor supply and savings decisions suggest that, other things equal, individuals with more
labor supply flexibility are likely to invest more in risky assets, regardless of their age,
because of the insurance component that flexible labor supply provides. After controlling
for panel sample selection and unobserved heterogeneity I find that labor supply
flexibility leads to holding between 12% and 14% more wealth in stocks.
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