We posit the time required for managing risky asset investment including conducting research and monitoring its performance. An economic agent, who should allocate
a limited amount of time to labor, leisure and risky investment, is subject to the opportunity time cost, which is forgone labor or leisure. We explore the optimal portfolio, consumption, labor and leisure choices over the life-cycle in the presence of such time costs. Our model is shown to yield the stock holding ratio and limited participation in the stock market consistent with historical behavior of U.S. households. In addition, it outperforms benchmark models including standard consumption-based models
in explaining the cross-sectional dispersion of consumption, wealth, income, and labor/leisure time observed in demographic data.
Keywords: Time cost; Opportunity cost; Monitoring cost; Full income approach; Portfolio choice; Time allocation; Leisure-labor choice; Limited participation