What question did this study set out to answer?

To examine how variations in housing collateral relative to human wealth influence household exposure to risk and conditional equity return distributions.

May 3, 2005The Journal of FinanceOpen Access

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

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To examine how variations in housing collateral relative to human wealth influence household exposure to risk and conditional equity return distributions.
Analyzed aggregate macroeconomic and financial market data from the United States.
Modeled the ratio of housing wealth to human wealth as a conditioning variable driving time-varying exposure to idiosyncratic risk.
Evaluated the pricing of size and book-to-market sorted portfolios using conditional covariance with aggregate risk factors.
A decrease in the ratio of housing wealth to human wealth systematically predicts higher future stock returns.
Conditional on the housing-to-human wealth ratio, the covariance of returns with aggregate risk factors explains 80% of the cross-sectional variation in annual size and book-to-market portfolio returns.

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Implication

Empirical asset pricing study reveals that falling housing-to-human wealth ratios predict higher stock returns in US aggregate data, indicating housing collateral shapes market risk premia.

Cite This Study

Lustig et al. (2005) studied this question.

synapsesocial.com/papers/6a7b0bed0b10e55359899d2e https://doi.org/10.1111/j.1540-6261.2005.00759.x

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Implication

Empirical asset pricing study reveals that falling housing-to-human wealth ratios predict higher stock returns in US aggregate data, indicating housing collateral shapes market risk premia.

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

Key Points

Discussion

Implication

Cite This Study

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

Key Points

Discussion

Implication

Cite This Study

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