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1,453
Time Discounting and Time Preference: A Critical Review
- JOURNAL OF ECONOMIC LITERATURE
, 2002
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Risks for the long run: A potential resolution of asset pricing puzzles
- JOURNAL OF FINANCE
, 1994
"... We model consumption and dividend growth rates as containing (i) a small long-run predictable component and (ii) fluctuating economic uncertainty (consumption volatility). These dynamics, for which we provide empirical support, in conjunction with Epstein and Zin’s (1989) preferences, can explain ke ..."
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Cited by 761 (63 self)
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We model consumption and dividend growth rates as containing (i) a small long-run predictable component and (ii) fluctuating economic uncertainty (consumption volatility). These dynamics, for which we provide empirical support, in conjunction with Epstein and Zin’s (1989) preferences, can explain key asset markets phenomena. In our economy, financial markets dislike economic uncertainty and better long-run growth prospects raise equity prices. The model can justify the equity premium, the risk-free rate, and the volatility of the market return, risk-free rate, and the price-dividend ratio. As in the data, dividend yields predict returns and the volatility of returns is time-varying.
Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study.”
- Quarterly Journal of Economics
, 1997
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Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles
, 2007
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Neighbors as Negatives: Relative Earnings and Well-Being
- Quarterly Journal of Economics
, 2005
"... This paper investigates whether individuals feel worse off when others around them earn more. In other words, do people care about relative position, and does “lagging behind the Joneses ” diminish well-being? To answer this question, I match individual-level data containing various indicators of we ..."
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Cited by 426 (7 self)
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This paper investigates whether individuals feel worse off when others around them earn more. In other words, do people care about relative position, and does “lagging behind the Joneses ” diminish well-being? To answer this question, I match individual-level data containing various indicators of well-being to information about local average earnings. I find that, controlling for an individual’s own income, higher earnings of neighbors are associated with lower levels of self-reported happiness. The data’s panel nature and rich set of measures of well-being and behavior indicate that this association is not driven by selection or by changes in the way people define happiness. There is suggestive evidence that the negative effect of increases in neighbors ’ earnings on own well-being is most likely caused by interpersonal preferences, that is, people having utility functions that depend on relative consumption in addition to absolute consumption. I.
Asset Pricing in Production Economies,”
- Journal of Monetary Economics,
, 1998
"... Abstract This paper studies asset returns in different versions of the one-sector real business cycle model. We show that a model with habit formation preferences and capital adjustment costs can explain the historical equity premium and the average risk-free return while replicating the salient bu ..."
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Cited by 354 (10 self)
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Abstract This paper studies asset returns in different versions of the one-sector real business cycle model. We show that a model with habit formation preferences and capital adjustment costs can explain the historical equity premium and the average risk-free return while replicating the salient business cycle properties. The paper also applies a solution technique that combines loglinear methods with lognormal asset pricing formulae. 1998 Elsevier Science B.V. All rights reserved. JEL classification: G12; C63; E22
Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?
, 2000
"... The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by monetary shocks interacting with sticky goods prices. We quantify this story and find that it can acco ..."
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Cited by 343 (6 self)
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The central puzzle in international business cycles is that real exchange rates are volatile and persistent. The most popular story for real exchange rate fluctuations is that they are generated by monetary shocks interacting with sticky goods prices. We quantify this story and find that it can account for some of the observed properties of real exchange rates. When prices are held fixed for at least one year, risk aversion is high and preferences are separable in leisure, the model generates real exchange rates that are as volatile as in the data. The model also generates real exchange rates that are persistent, but less so than in the data. If monetary shocks are correlated across countries, then the comovements in aggregates across countries are broadly consistent with those in the data. Making asset markets incomplete or introducing sticky wages does not measurably change the results.
Consumption, Aggregate Wealth, and Expected Stock Returns
- THE JOURNAL OF FINANCE • VOL. LVI, NO. 3 • JUNE 2001
, 2001
"... This paper studies the role of fluctuations in the aggregate consumption–wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption–wealth ratio are strong predictors of both real stock returns and excess returns over a Treas ..."
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Cited by 321 (23 self)
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This paper studies the role of fluctuations in the aggregate consumption–wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption–wealth ratio are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the dividend payout ratio, and several other popular forecasting variables. Why should the consumption–wealth ratio forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption–aggregate wealth ~human capital plus asset holdings! ratio summarizes expected returns on aggregate wealth, or the market portfolio. Although this ratio is not observable, we provide assumptions under which its important predictive components for future asset returns may be expressed in terms of observable variables, namely in terms of consumption, asset holdings and labor income. The framework implies that these variables are cointegrated, and
What Explains the Stock Markets Reaction to Federal Reserve
- Policy“, Federal Reserve of San Francisco Conference on Macroeconomics & Finance
, 2003
"... This paper analyzes the impact of unanticipated changes in the Federal funds target on equity prices, with the aim of both estimating the size of the typical reaction, and understanding the reasons for the market’s response. On average over the May 1989 to December 2001 sample, a “typical ” unantici ..."
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Cited by 276 (5 self)
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This paper analyzes the impact of unanticipated changes in the Federal funds target on equity prices, with the aim of both estimating the size of the typical reaction, and understanding the reasons for the market’s response. On average over the May 1989 to December 2001 sample, a “typical ” unanticipated 25 basis point rate cut has been associated with a 1.3 percent increase in the S&P 500 composite index. The estimated response varies considerably across industries, with the greatest sensitivity observed in cyclical industries like construction, and the smallest in mining and utilities. Very little of the market’s reaction can be attributed to policy’s effects on the real rate of interest or future dividends, however. Instead, most of the response of the current excess return on equities can be traced to policy’s impact on expected future excess returns. JEL codes: E44, G12. 1
