TY  - UNPD
A1  - Kraft, Holger
A1  - Munk, Claus
A1  - Weiss, Farina
T1  - Predictors and portfolios over the life cycle
T2  - SAFE working paper series ; No. 139
N2  - We show that the net corporate payout yield predicts both the stock market index and house prices and that the log home rent-price ratio predicts both house prices and labor income growth. We incorporate the predictability in a rich life-cycle model of household decisions involving consumption of both perishable goods and housing services, stochastic and unspanned labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. We find that households can significantly improve their welfare by optimally conditioning decisions on the predictors. For a modestly risk-averse agent with a 35-year working period and a 15-year retirement period, the present value of the higher average life-time consumption amounts to roughly $179,000 (assuming both an initial wealth and an initial annual income of $20,000), and the certainty equivalent gain is around 5.5% of total wealth (financial wealth plus human capital). Furthermore, every cohort of agents in our model would have benefited from applying predictor-conditional strategies along the realized time series over our 1960-2010 data period.
T3  - SAFE working paper - 139 
KW  - return predictability
KW  - human capital
KW  - housing
KW  - investments
KW  - welfare
Y1  - 2016
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/40672
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-406722
UR  - http://ssrn.com/abstract=2787568
PB  - SAFE
CY  - Frankfurt am Main
ER  -