Evaluating stock returns with time-varying risk aversion driven by trend deviations from the consumption-to-wealth ratio: An analysis conditional on income levels

Based on the cointegrating relationship between consumption and wealth, we estimate the long run consumption-to-wealth ratio for each of five consumer income quintiles as well as national data for benchmarking purposes. Short run deviations from the consumption-to-wealth ratio for each quintile are examined for their ability to forecast changes in future consumption, income, housing values, and especially stock returns. We demonstrate that these trend deviations when combined with consumption growth in a multifactor model, significantly improve the ability of the dividend-to-price ratio to forecast future market returns over short and intermediate horizons for consumers in the highest-income quintile. This paper contributes to the financial economic literature by showing that the highest-income consumers are forecasting future stock returns with the help of the persistence in the dividend-to-price ratio and are modifying their consumption accordingly.     

Unsecured credit markets are not insurance markets

We study the extent to which unsecured credit markets have altered the transmission of increased income risk to consumption variability over the past several decades. We find that unsecured credit markets pass through increased income risk to consumption, irrespective of bankruptcy policy and the information possessed by lenders. If risk sharing has indeed improved over this period, the reasons do not therefore lie in the unsecured credit market.     

Future labor income growth and the cross-section of equity returns

This paper examines the equilibrium relation between future labor income growth and expected asset returns; it proposes revisions in the expectation of future labor income growth as a macroeconomic state variable and suggests a three-factor model, including a factor related to this variable, along with the consumption growth factor and the market factor. The proposed future labor income growth factor is positively associated with the Fama-French factors and subsumes their explanatory power in explaining the cross-section of stock returns. These results provide a possible economic explanation for the roles of the Fama-French factors: they are compensation for higher exposure to the risk related to changes in the value of human capital. This paper also compares the performance of the proposed three-factor model with other competing models and finds that the proposed model specification better captures cross-sectional variation in average returns than any of the competing asset pricing models considered.     

The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data

In this paper, we conduct a dynamic panel analysis of the determinants of the household saving rate in China using a life cycle model and panel data on Chinese provinces for the 1995–2004 period from China's household survey. We find that China's household saving rate has been high and rising and that the main determinants of variations over time and over space therein are the lagged saving rate, the income growth rate, (in many cases) the real interest rate, and (in some cases) the inflation rate. However, we find that the variables relating to the age structure of the population have the expected impact on the household saving rate in only one of the four samples. These results provide mixed support for the life cycle hypothesis as well as the permanent income hypothesis, are consistent with the existence of inertia or persistence, and imply that China's household saving rate will remain high for some time to come.     

Income Inequality: A Tale of Two Cycles?

Building on previous work, this paper documents the changes in income inequality that have occurred over the past 20 years, right up until the late 1990s. In particular, we are interested in whether or not the path of inequality in the most recent economic cycle differed from that observed in the 1980s. The robustness of the results is investigated using innovative statistical techniques, in an attempt to identify whether or not the observed changes represent real increases or decreases in inequality or whether they can be attributed simply to sampling variation between years. Finally, some preliminary results are presented which attempt to identify some of the reasons underlying the observed trends in income inequality, with a particular focus on the role of the labour market.     

我国居民收入提升对增加消费有效性的地域分异研究

居民收入对增加消费有一定的刺激作用,通过对全国287个城市的收入与消费的横截面数据聚类分析,再分组回归得出边际消费倾向,进而分析边际消费倾向与收入的关系,得出我国的边际消费倾向随着人均收入的增加先上升后下降,数学模型呈现二次函数关系,且我国大部分城市的边际消费倾向都有随着收入增加而上升的空间,而消费与收入的关系则呈现三次函数关系。     

Household Debt and Income Inequality, 1963–2003

I construct an economy with heterogeneous agents that mimics the time-series behavior of the earnings distribution in the United States from 1963 to 2003. Agents face aggregate and idiosyncratic shocks and accumulate real and financial assets. I estimate the shocks that drive the model using data on income inequality, aggregate income, and measures of financial liberalization. I show how the model economy can replicate two empirical facts: the trend and cyclical behavior of household debt and the diverging patterns in consumption and wealth inequality over time. While business cycle fluctuations can account for the short-run changes in household debt, its prolonged rise of the 1980s and the 1990s can be quantitatively explained only by the concurrent increase in income inequality.     

Heterogeneous life-cycle profiles, income risk and consumption inequality

Was the increase in income inequality in the US due to permanent shocks or merely to an increase in the variance of transitory shocks? The implications for consumption and welfare depend crucially on the answer to this question. We use Consumer Expenditure Survey (CEX) repeated cross-section data on consumption and income to decompose idiosyncratic changes in income into predictable life-cycle changes, transitory and permanent shocks and estimate the contribution of each to total inequality. Our model fits the joint evolution of consumption and income inequality well and delivers two main results. First, we find that permanent changes in income explain all of the increase in inequality in the 1980s and 1990s. Second, we reconcile this finding with the fact that consumption inequality did not increase much over this period. Our results support the view that many permanent changes in income are predictable for consumers, even if they look unpredictable to the econometrician, consistent with models of heterogeneous income profiles.     

Life‐Cycle Expenditure and Retirees’ Cost of Living

The aim of this paper is twofold. First, we document the expenditure life‐cycle profile in the United Kingdom and show how differences in the consumption bundle of retirees and workers translate into different inflation experiences. Albeit different in given years, the inflation experienced by the two groups is not significantly different over a long time period. We also show how the distribution of household inflation evolved over time, with particular emphasis on the period around the latest financial crisis. Second, we estimate an Exact Affine Stone Index (EASI) demand system and compute the change in the cost of living and the substitution effect for both retirees and workers for the period 1990–2014. Finally, we show how pension income would evolve during that period under three alternative indexation measures for different cohorts of retirees. The indexation measure that results in the highest pension income depends on the time of retirement.     

The Explanatory Power and the Forecast Performance of Consumer Confidence Indices for Private Consumption Growth in Turkey

In this study, we assess empirically whether consumer confidence indices contain information about future private consumption growth in Turkey. To this end, we estimate models for quarterly total, durable, and nondurable consumption growth with and without sentiment indicators. We evaluate in-sample forecasts and one-step-ahead out-of-sample forecasts from recursive ordinary least squares (OLS) estimates. We also test permanent income and precautionary savings hypotheses with our results. We use overall indices of CNBC-e and Turkstat-CBRT Surveys, and Consumer Expectations Index (CEI) and Propensity to Consume Index (PCI) from the CNBC-e Survey as sentiment measures. We show that the lagged values of consumer sentiment have explanatory power on consumption growth. However, when used in conjunction with other economic variables such as real labor income, real stock price, real interest rate, and exchange rate, only CNBC-e for total consumption, and CBRT and PCI for nondurable consumption provide independent information about future consumption growth. Similarly, the gains in out-of-sample forecasts are observed under the absence of other variables and disappear in almost all cases following their inclusion to the estimations. Finally, we find no clear evidence for either precautionary savings motive or permanent income hypothesis on the link between consumer sentiment and future total consumption changes.     

Credit Card Debt and Default over the Life Cycle

This paper solves an empirically parameterized model of life cycle consumption, which allows for uncollaterized borrowing and the possibility of default. The simulation results show that: (i) "social stigma " and credit limit have a very large impact on default rates; (ii) education level also has a significant effect on the probability of default, namely, through differences in the shape of lifetime labor income profiles; and (iii) the response of simulated default rates to labor income shocks is determined by the nature of labor income uncertainty (temporary versus permanent). Additionally, the model generates simultaneous consumer holdings of credit card debt and liquid assets.     

Dynamic asset allocation with stochastic income and interest rates

We solve for optimal portfolios when interest rates and labor income are stochastic with the expected income growth being affine in the short-term interest rate in order to encompass business cycle variations in wages. Our calibration based on the Panel Study of Income Dynamics (PSID) data supports this relation with substantial variation across individuals in the slope of this affine function. The slope is crucial for the valuation and riskiness of human capital and for the optimal stock/bond/cash allocation both in an unconstrained complete market and in an incomplete market with liquidity and short-sales constraints.     

Monetary Policy and Inequality

We analyze the distributional effects of monetary policy on income, wealth, and consumption. We use administrative household-level data covering the entire population in Denmark over the period 1987 to 2014 and exploit a long-standing currency peg as a source of exogenous variation in monetary policy. We find that gains from softer monetary policy in terms of income, wealth, and consumption are monotonically increasing in ex ante income. The distributional effects reflect systematic differences in exposure to the various channels of monetary policy, especially nonlabor channels (e.g., leverage and risky assets). Our estimates imply that softer monetary policy increases income inequality.     

Time Variation in the Covariance between Stock Returns and Consumption Growth

The conditional covariance between aggregate stock returns and aggregate consumption growth varies substantially over time. When stock market wealth is high relative to consumption, both the conditional covariance and correlation are high. This pattern is consistent with the “composition effect,” where agents' consumption growth is more closely tied to stock returns when stock wealth is a larger share of total wealth. This variation can be used to test asset‐pricing models in which the price of consumption risk varies. After accounting for variations in this price, the relation between expected excess stock returns and the conditional covariance is negative.     

Consumption growth and time-varying expected stock returns

When the consumption growth rate is measured based upon fourth quarter data, it tracks predictable variation in future excess stock returns. Low fourth quarter consumption growth rates predict high future excess stock returns such that expected returns are high at business cycle troughs and low at business cycle peaks. The consumption growth rate loses predictive power when it is measured based upon other quarters. This is consistent with the insight of Jagannathan and Wang [2007. Journal of Finance 62, 1623–1661] that investors tend to review their consumption and investment plans during the end of each calendar year, and at possibly random times in between. The consumption growth rate measured based upon fourth quarter data is a much stronger predictive variable than benchmark predictive variables such as the dividend–price ratio, the term spread, and the default spread.     

On the nonlinear relationship between energy use and CO2 emissions within an EKC framework: Evidence from panel smooth transition regression in the MENA region

This paper proposes a new approach for analyzing the dynamic relationships between carbon dioxide (CO₂) emissions, energy use, and income for the Middle East and North African (MENA) region. Our study implements a class of regime-switching models, namely a nonlinear panel smooth transition regression (PSTR) framework. Two kinds of estimates for carbon emissions are provided. On the one hand, we measure the impact of energy consumption on CO₂ concerning the level of income per capita, as countries with a similar energy usage level would have different levels of energy intensity. On the other hand, we estimate the impact of output growth on emissions concerning energy usage variation, as a higher economic growth does not necessarily mean energy-intensive activities. Our empirical findings support these intuitions as they indicate that pollutant emissions respond nonlinearly to energy consumption and GDP growth. We find an inverted U-shaped pattern for the impact of energy on CO₂, in the sense that environmental degradation is declining beyond a given income threshold, which is estimated endogenously within the PSTR model. Also, our results underscore that GDP growth significantly impacts carbon emissions only for higher energy consumption growth.     

A Consumption-Based Explanation of Expected Stock Returns

When utility is nonseparable in nondurable and durable consumption and the elasticity of substitution between the two consumption goods is sufficiently high, marginal utility rises when durable consumption falls. The model explains both the cross‐sectional variation in expected stock returns and the time variation in the equity premium. Small stocks and value stocks deliver relatively low returns during recessions, when durable consumption falls, which explains their high average returns relative to big stocks and growth stocks. Stock returns are unexpectedly low at business cycle troughs, when durable consumption falls sharply, which explains the countercyclical variation in the equity premium.     

影响居民消费行为的信贷条件分析——基于2002～2009年我国城镇居民消费的实证研究

我国城镇居民消费对收入的过度敏感性较强,面临流动性约束的居民占比较高,影响收入增长的政策能够对消费起到刺激作用。但是以消费信贷额、借贷利差表示的信贷条件对居民消费的促进作用并不明显。进一步的考察显示,消费信贷资源没有流向最有可能面临流动性约束的低收入群体,是其未能对消费形成有力影响的原因所在。     

Does Wealth Imply Secularization and Longevity?

We develop a simple life cycle model with endogenous longevity where religious firms influence religious beliefs using donations as an input. The model suggests that either wealth and economic development or competition by religious firms can explain cross-country variation in religious beliefs, but to explain cross-country variation in religious beliefs, longevity, and consumption both development and competition are required. Our results depend on the wealth and substitution effects that accompany economic development and religious market competition.     

The dynamics of government

We model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations. We find that redistribution is too persistent relative to that chosen by a planner with commitment. The difference is larger, the lower is the political influence of young agents, the lower is the altruistic concern for future generations, and the lower is risk-aversion. Furthermore, there tends to be too much redistribution in the political equilibrium. Finally, smooth preference aggregation, as under probabilistic voting, produces less persistence and does not admit multiple equilibria, which occur under majority-voting aggregation.