scholarly journals The Equity Premium and the One Percent

2019 ◽  
Vol 33 (8) ◽  
pp. 3583-3623 ◽  
Author(s):  
Alexis Akira Toda ◽  
Kieran James Walsh
Keyword(s):  
Equity Premium ◽  
International Markets ◽  
Market Returns ◽  
Stock Market Returns ◽  
Tax Rate ◽  
Oxford University ◽  
Out Of Sample ◽  
The Rich ◽  
The One ◽  
Published Paper

Abstract We show that in a general equilibrium model with heterogeneity in risk aversion or belief, shifting wealth from an agent who holds comparatively fewer stocks to one who holds more reduces the equity premium. From an empirical view, the rich hold more stocks, so inequality should predict excess stock market returns. Consistent with our theory, we find that when the U.S. top ($\textrm{e.g.}$, 1%) income share rises, subsequent 1-year excess market returns significantly decline. This negative relation is robust to controlling for classic return predictors, predicting out-of-sample, and instrumenting inequality with estate tax rate changes. It also holds in international markets. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals Socioeconomic Status and Macroeconomic Expectations

2019 ◽  
Vol 33 (1) ◽  
pp. 395-432 ◽  
Author(s):  
Sreyoshi Das ◽  
Camelia M Kuhnen ◽  
Stefan Nagel
Keyword(s):  
Socioeconomic Status ◽  
Stock Market ◽  
Durable Goods ◽  
Low Ses ◽  
Market Returns ◽  
Stock Market Returns ◽  
Oxford University ◽  
Editorial Decision ◽  
Business Conditions ◽  
Published Paper

Abstract We show that individuals’ macroeconomic expectations are influenced by their socioeconomic status (SES). People with higher income or higher education are more optimistic about future macroeconomic developments, including business conditions, the national unemployment rate, and stock market returns. The spread in beliefs between high- and low-SES individuals diminishes significantly during recessions. A comparison with professional forecasters and historical data reveals that the beliefs wedge reflects excessive pessimism on the part of low-SES individuals. SES-driven expectations help explain why higher-SES individuals are more inclined to invest in the stock market and more likely to consider purchasing homes, durable goods, or cars. Received November 13, 2017; editorial decision February 12, 2019 by Editor Wei Jiang. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals The Simplest Non-Expected Utility Model for Lottery and Portfolio Choices

2018 ◽  
Vol 12 (1) ◽  
Author(s):  
Richard Butler ◽  
Val Lambson
Keyword(s):  
Equity Premium ◽  
International Markets ◽  
Utility Model ◽  
Allais Paradox ◽  
Market Returns ◽  
Geometric Means ◽  
Stock Market Returns ◽  
Premium Puzzle ◽  
Post War ◽  
Expected Utility Model

Abstract This paper explores a particularly simple model of choice under risk, based on geometric means and entropy. Despite its simplicity, it satisfies various prudence and risk aversion conditions, is consistent with the Allais paradox, and generates various insurance-related results. Within a portfolio framework with compounded reinvestments, our index fits the risks/rewards data from post-war US stock market returns and recent international markets, at least as well as does the standard deviation measures more typically used. It also generates returns that are consistent with the equity premium puzzle.

Testing for Multiple-Horizon Predictability: Direct Regression Based versus Implication Based

2019 ◽  
Vol 33 (9) ◽  
pp. 4403-4443 ◽  
Author(s):  
Ke-Li Xu
Keyword(s):  
Equity Premium ◽  
Predictive Ability ◽  
Finite Sample ◽  
Simulation Experiments ◽  
Asset Return ◽  
Predictive Regression ◽  
Oxford University ◽  
Short Run ◽  
Direct Regression ◽  
Published Paper

Abstract Research in finance and macroeconomics has routinely employed multiple horizons to test asset return predictability. In a simple predictive regression model, we find the popular scaled test can have zero power when the predictor is not sufficiently persistent. A new test based on implication of the short-run model is suggested and is shown to be uniformly more powerful than the scaled test. The new test can accommodate multiple predictors. Compared with various other widely used tests, simulation experiments demonstrate remarkable finite-sample performance. We reexamine the predictive ability of various popular predictors for aggregate equity premium. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Macroeconomic Tail Risks and Asset Prices

2019 ◽  
Vol 33 (8) ◽  
pp. 3541-3582 ◽  
Author(s):  
David Schreindorfer
Keyword(s):  
Stock Market ◽  
Asset Prices ◽  
Equity Premium ◽  
Return Predictability ◽  
Risk Premiums ◽  
Asset Pricing Model ◽  
Oxford University ◽  
Excess Volatility ◽  
Equity Index ◽  
Published Paper

Abstract I document that dividend growth and returns on the aggregate U.S. stock market are more correlated with consumption growth in bad economic times. In a consumption-based asset pricing model with a generalized disappointment-averse investor and small, IID consumption shocks, this feature results in a realistic equity premium despite low risk aversion. The model is consistent with the main facts about stock market risk premiums inferred from equity index options, remains tightly parameterized, and allows for analytical solutions for asset prices. An extension with non-IID dynamics accounts for excess volatility and return predictability, while preserving the model’s consistency with option moments. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Ilhan Niaz. The Culture of Power and Governance of Pakistan 1947–2008. Karachi, Pakistan: Oxford University Press. 2010. 320 pages. Pak Rupees 595.00

2013 ◽  
Vol 52 (2) ◽  
pp. 175-177 ◽  
Author(s):  
Amina Sarwar
Keyword(s):  
The State ◽  
Oxford University ◽  
Strong Case ◽  
History Of ◽  
The Rich ◽  
The One ◽  
Rich History ◽  
Oxford University Press

“The Culture of Power and Governance of Pakistan 1947–2008” by Ilhan Niaz makes a strong case for the quotation, “the one who does not remember history is bound to live through it”. In the book, the author has tried to trace the current culture of power and governance in Pakistan through the rich history of the subcontinent. He has asked the question that why the State of Pakistan is constantly losing its writ as many incidents, such as the “Laal Masjid” debacle, are challenging the writ of the state. He has also analysed why State of Pakistan is always facing issues in domains of administration, legislation, execution and judiciary. These issues are becoming existential threat to the Pakistani State. The author has blamed the rulers of Pakistan who behave like “Bureaucratic Continental Empires”.

scholarly journals Salience and Asset Prices

2013 ◽  
Vol 103 (3) ◽  
pp. 623-628 ◽  
Author(s):  
Pedro Bordalo ◽  
Nicola Gennaioli ◽  
Andrei Shleifer
Keyword(s):  
Asset Pricing ◽  
Simple Model ◽  
Stock Market ◽  
Asset Prices ◽  
Equity Premium ◽  
Market Valuation ◽  
Market Returns ◽  
Stock Market Returns ◽  
Risky Assets ◽  
Very High

We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way, including preference for assets with a chance of very high payoffs, an aggregate equity premium, and countercyclical variation in stock market returns.

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