Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perspective
Hanno N. Lustig
UCLA - Anderson School of Management; National Bureau of Economic Research (NBER)
Stijn Van Nieuwerburgh
New York University Stern School of Business, Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
March 15, 2004
EFA 2004 Maastricht Meetings Paper No. 1403
Journal of Finance, Vol. 60, No. 3, 2005
In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the conditional market price of risk. Using aggregate data for the US, we find that a decrease in the ratio of housing wealth to human wealth predicts higher returns on stocks. Conditional on this ratio, the covariance of returns with aggregate risk factors explains eighty percent of the cross-sectional variation in annual size and book-to-market portfolio returns.
Number of Pages in PDF File: 56
Keywords: Asset Pricing, Risk SharingAccepted Paper Series
Date posted: June 23, 2004 ; Last revised: August 27, 2012
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