Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perpective

Hanno Lustig () and Stijn Van Nieuwerburgh

No 9959, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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. A data appendix for this paper is available.

JEL-codes: G1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-ure
Date: 2003-09
Note: AP

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Journal Article: Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective (2005)
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