Heterogeneity of U.S. Household Labor Income: Evidence from Stock Market

Abstract: The thesis is aimed to have a deeper understanding of heterogeneity of household labor income process across different educational levels and industrial categories. I utilize a fixed-effect model and risk decomposition methodology to analyze the differences of risk profile of labor income innovations and the correlation between labor income process and stock portfolio returns. The results from U.S. empirical data have shown quite different risk profiles for households within different educational and industrial cell. The study reinforces present research results and serves as a good explanation for the failure of mutual fund separate theorem.