Li Sun

Date of Graduation


Document Type


Degree Type



College of Business and Economics



Committee Chair

Victor K Chow

Committee Co-Chair

Naomi E Boyd

Committee Member

Stratford M Douglas

Committee Member

William Riley

Committee Member

Feng Yao


This dissertation analyzes households' asset allocation decisions and studies how the financial crisis affects income distribution using panel datasets from household surveys. The first essay focuses on how the precautionary saving motive can affect households' asset allocation decisions. It develops a life-cycle model that explicitly accounts for the effects of potential future expenditure shocks; the implications of this model better match the empirically observed investment behaviors of households. A precautionary index is constructed to measure the adequacy of households' precautionary saving, and it is found that this factor has significant explanatory power regarding households' stock market participation and risky asset allocation decisions. In the second essay, a life-cycle model is developed to investigate how health risk and rare event risk will affect retirees' optimal asset allocation decisions. Health Risk is modeled as a stochastic medical expenditure, calibrated using data from the Health and Retirement Survey. The rare event risk is modeled as a financial crisis risk where the stock market has a small but positive probability of crashing. Compared with models that do not take into account health risk or financial market risk, the optimal policy rules and the simulation results obtained from this model better explain retirees' equity holding behaviors as observed in the empirical data. In the third essay, a non-parametric decomposition methodology is applied to analyze the change of income distribution before and after the 2008 financial crisis in the United States. I decompose the Lorenz curve and its associated concentration curve by subgroups defined on the basis of race, gender, and retirement status using the 2007-2009 Survey of Consumer Finance (SCF) panel dataset. It is found that the income distribution shifted following the crisis. For households in the bottom to the 9th decile of the income distribution, income share increased, and the increases were more pronounced when measured by the concentration curve.