Housing, Consumption, and Asset Pricing

Monika Piazzesi, Martin Schneider and Selale Tuzel

No 12036, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers a consumption-based asset pricing model where housing is explicitly modeled both as an asset and as a consumption good. Nonseparable preferences describe households' concern with composition risk, that is, fluctuations in the relative share of housing in their consumption basket. Since the housing share moves slowly, a concern with composition risk induces low frequency movements in stock prices that are not driven by news about cash flow. Moreover, the model predicts that the housing share can be used to forecast excess returns on stocks. We document that this indeed true in the data. The presence of composition risk also implies that the riskless rate is low which further helps the model improve on the standard CCAPM.

JEL-codes: G0 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-dge and nep-ure
Note: AP EFG ME
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Citations: View citations in EconPapers (13)

Published as Piazzesi, Monika, Martin Schneider and Selale Tuzel. “Housing, Consumption, and Asset Pricing.” Journal of Financial Economics 83 (March 2007): 531-569.

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Journal Article: Housing, consumption and asset pricing (2007)
Working Paper: Housing, Consumption and Asset Pricing (2004)
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