Suchergebnisse

NUMEROUS AUTHORS, INCLUDING SHILLER, LEROY AND PORTER, AND SINGLETON, HAVE REPORTED EMPIRICAL EVIDENCE THAT STOCK PRICES AND LONG INTEREST RATES ARE MORE VOLATILE THAN CAN BE JUSTIFIED BY STANDARD ASSET-PRICING MODELS. THIS PAPER SHOWS THAT IN SMALL SAMPLES THE "VOLATILITY" OR "VARIANCE-BOUNDS" TESTS TEND TO BE BIASED, OFTEN SEVERELY, TOWARD REJECTION OF THE NULL HYPOTHESIS OF MARKET EFFICIENCY. THUS THE APPARENT VIOLATION OF MARKET EFFICIENCY MAY BE REFLECTING THE SAMPLING PROPERTIES OF THE VOLATILITY MEASURES, RATHER THAN A FAILURE OF THE MARKET EFFICIENCY HYPOTHESIS ITSELF. THE PAPER ALSO REPORTS SOME UNBIASED ESTIMATES OF THE BOUNDS ON HOLDING PERIOD YIELDS AND LONG INTEREST RATES. MUCH OF THE EVIDENCE OF EXCESS VOLATILITY DISAPPEARS WHEN THE TESTS ARE CORRECTED FOR SMALL SAMPLE BIAS.

The paper constructs a model of optimal portfolio allocation incorporating the role of housing as collateral. Current house value is a state variable in the portfolio decision due to a nonconvex adjustment cost. Holding risk aversion constant, the percentage of the portfolio held in stocks is decreasing in the ratio of house value to net wealth; thus an older household with a lower ratio of house value to net wealth will generally hold more its portfolio in stocks than younger households. Empirical results using the Survey of Consumer Finances confirm the quantitative and statistical significance of the housing state variable.

The paper provides a model of household consumption and portfolio allocation which incorporates housing as both a consumption good and a component of wealth. Household utility depends, possibly nonseparably, on two goods: nondurable consumption, which is costlessly adjustable, and housing, which is subject to a nonconvex adjustment cost. Households face housing price risk in the sense that the relative price of housing varies over time, and can invest in a wide variety of financial assets in addition to housing. This single, reasonably tractable, model generates testable implications for portfolio allocation, risk aversion, asset pricing, and the dynamics of nondurable consumption. (JEL D14, G11, R21)