Household Production and Asset Prices

Zhi Da (), Wei Yang () and Hayong Yun ()
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Zhi Da: Finance Department, Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana 46556
Wei Yang: Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Hayong Yun: Eli Broad College of Business, Michigan State University, East Lansing, Michigan 48824

Management Science, 2016, vol. 62, issue 2, 387-409

Abstract: We empirically examine the asset pricing implications of the Beckerian framework of household production, where utility is derived from both market consumption and home produced goods. We propose residential electricity usage as a real-time proxy for the service flow from household capital, because electricity is used in most modern-day household production activities and it cannot be easily stored. Using U.S. residential electricity usage from 1955 to 2012, our model based on household production explains the equity premium and the cross section of expected stock returns (including those of industry portfolios) with an R 2 of 71%. This paper was accepted by Jerome Detemple, finance.

Keywords: asset pricing; household production; electricity usage; consumption-based models; cross section of stock returns; industry portfolios (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (10)

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