Predictors and portfolios over the life cycle
- 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.
Verfasserangaben: | Holger KraftGND, Claus MunkORCiDGND, Farina Weiss |
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URN: | urn:nbn:de:hebis:30:3-406722 |
URL: | http://ssrn.com/abstract=2787568 |
Titel des übergeordneten Werkes (Englisch): | SAFE working paper series ; No. 139 |
Schriftenreihe (Bandnummer): | SAFE working paper (139) |
Verlag: | SAFE |
Verlagsort: | Frankfurt am Main |
Dokumentart: | Arbeitspapier |
Sprache: | Englisch |
Jahr der Fertigstellung: | 2016 |
Jahr der Erstveröffentlichung: | 2016 |
Veröffentlichende Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Datum der Freischaltung: | 19.07.2016 |
Freies Schlagwort / Tag: | housing; human capital; investments; return predictability; welfare |
Seitenzahl: | 53 |
HeBIS-PPN: | 386292485 |
Institute: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE) | |
DDC-Klassifikation: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Lizenz (Deutsch): | Deutsches Urheberrecht |