Asset Holding and Consumption Volatility

32 Pages Posted: 16 Jul 2000 Last revised: 12 Dec 2022

See all articles by Orazio Attanasio

Orazio Attanasio

Dept of Economics Yale University; Institute for Fiscal Studies (IFS); University College London - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

James W. Banks

Institute for Fiscal Studies; The University of Manchester

Sarah Tanner

Institute for Fiscal Studies (IFS)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1998

Abstract

Recent studies have explored the possibility that limited participation in asset markets, and the stock market in particular, might explain the lack of correspondence between the sample moments of the Intertemporal Marginal Rate of Substitution and asset returns. We estimate ownership probabilities to separate likely' shareholders from non-shareholders, enabling us to control for changing composition effects as well as selection into the group. We then construct estimates of the IMRS for each of these different groups and consider their time series properties. We find that the consumption growth of shareholders is more volatile than that of non-shareholders, and more highly correlated with excess returns to shares. In particular, one cannot reject the predictions of the Consumption CAPM for the group of households predicted to own both assets. This is in contrast to the failure of the model when estimated on data for all households.

Suggested Citation

Attanasio, Orazio and Banks, James W. and Tanner, Sarah, Asset Holding and Consumption Volatility (May 1998). NBER Working Paper No. w6567, Available at SSRN: https://ssrn.com/abstract=226300

Orazio Attanasio (Contact Author)

Dept of Economics Yale University ( email )

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Institute for Fiscal Studies (IFS)

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University College London - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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James W. Banks

Institute for Fiscal Studies ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

The University of Manchester

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United Kingdom

Sarah Tanner

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom