The Household Equity Share and Expected Market Returns

41 Pages Posted: 3 Jul 2016

See all articles by David Yang

David Yang

University of California, Irvine - Paul Merage School of Business

Fan Zhang

PrepScholar Education

Date Written: June 30, 2016

Abstract

The “Household Equity Share” (HEShare), the share of the household sector's equity and credit assets allocated to equities, is a negative predictor of excess returns on the US stock market. When the household sector has a higher equity share, future excess returns to equities are lower on average. This predictability is robust to the definition of the asset classes, first versus second half of sample, and adjusting for finite sample bias. HEShare outperforms many popular forecasters of market returns, including the cyclically adjusted price-earnings ratio, the equity share in new issuances, and the consumption-wealth ratio. Our results suggest that household holdings of financial assets play an important role in setting asset prices and risk premia.

Keywords: Return Predictability, Household Financial Holdings, Aggregate Stock Returns

JEL Classification: G11, G12

Suggested Citation

Yang, David and Zhang, Fan, The Household Equity Share and Expected Market Returns (June 30, 2016). Available at SSRN: https://ssrn.com/abstract=2802958 or http://dx.doi.org/10.2139/ssrn.2802958

David Yang (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

HOME PAGE: http://www.DavidCYang.com

Fan Zhang

PrepScholar Education ( email )

810 Memorial Dr, Suite 3L
Cambridge, MA 02139
United States

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