Rich Pickings? Risk, Return, and Skill in Household Wealth

2020 ◽  
Vol 110 (9) ◽  
pp. 2703-2747 ◽  
Author(s):  
Laurent Bach ◽  
Laurent E. Calvet ◽  
Paolo Sodini
Keyword(s):  
Idiosyncratic Risk ◽  
Household Wealth ◽  
Expected Return ◽  
Cross Sectional ◽  
Balance Sheets ◽  
Net Worth ◽  
Average Return ◽  
Risk Free Rate ◽  
Free Rate

We investigate wealth returns on an administrative panel containing the disaggregated balance sheets of Swedish residents. The expected return on household net wealth is strongly persistent, determined primarily by systematic risk, and increasing in net worth, exceeding the risk-free rate by the size of the equity premium for households in the top 0.01 percent. Idiosyncratic risk is transitory but generates substantial long-term dispersion in returns in top brackets. Systematic and idiosyncratic risk both drive the cross-sectional distribution of the geometric average return over a generation. Furthermore, wealth returns explain most of the historical increase in top wealth shares. (JEL D31, G11, G51)

BUSINESS CYCLE AND OPTIMAL TIMING FOR INVESTMENT

2012 ◽  
Vol 6 (1) ◽  
pp. 31-41
Author(s):  
Joseph Cheng ◽  
Jeffery Lippitt
Keyword(s):  
Standard Deviation ◽  
Business Cycle ◽  
Risk Ratio ◽  
Equity Capital ◽  
Optimal Timing ◽  
Expected Return ◽  
Gdp Growth Rate ◽  
The Business Cycle ◽  
Risk Free Rate ◽  
Free Rate

The objective of this paper is to determine which point of the business cycle offers investors the best reward to risk ratio in the stock market.  Expected reward is defined as expected return in excess of the risk free rate, whereas risk is defined as the standard deviation of return.  Thus, the expected reward to risk ratio is measured by expected return in excess of risk free rate relative to the standard deviation of return.  Expected return in excess of the risk free rate and standard deviation of return are generated on a continuum of time periods and the GDP growth rate.  The point where the expected reward to risk ratio peaks, would signify the best time for investment.  Being able to identify this point could help investors in deciding the best time to invest as well as help firms in choosing a favorable time for raising equity capital.  While most people think that the best time to invest is near the bottom, it is not clear whether the best time for investing is before, at, or after the economic trough.  The interesting finding in our model is that the best time is after the point of the economic trough.

scholarly journals PROBLEMS OF CONFIRMATION OF THE AMOUNTS OF INCOME AND EXPENSES THAT ARISE IN ACCOUNTING FOR LONG-TERM DEBT

2020 ◽  
pp. 534-541
Author(s):  
T. Paientko
Keyword(s):  
Income Tax ◽  
Effective Rate ◽  
Review Of The Literature ◽  
Unified Approach ◽  
The Past ◽  
Risk Free Rate ◽  
Standard Operations ◽  
Free Rate

The article is devoted to solving the problematic issues of confirming the amounts of income and expenses that arise in accounting for long-term debt. A review of the literature has shown that domestic researchers do not pay enough attention to the method of determining the effective rate in various situations. It is incorrect to use the approaches of western researchers in determining the effective rate, as in Ukraine there is no unified approach for determining a risk-free rate. The purpose of the article is to justify the approaches to determining the effective interest rate when accounting for long-term debt in order to reflect correctly income and expenses arising from the discount calculation. Over the past few years, during tax audits, tax inspectors do not recognize or recognize income and expenses of income taxpayers that arise from the reflection of the discount in an incomplete amount. As a result, the taxpayers have income tax arrears, the amounts of which they do not agree with, and therefore they must go to court. The issue of confirmation of the amount of income or expenses arising as a result of reflection of the discount is controversial and complicated, therefore often requires the involvement of a forensic expert economist. In practice, there are nonstandard situations, namely: reflection in the accounting of long-term debt with an uncertain maturity; – reflection in the accounting of interest-free financial aid; reflection in the accounting of non-standard loans. It has been determined that the source of the problem is the lack of common approaches to justify the effective rate used in discounting. The court practice of settling disputes between taxpayers and the tax service has been analyzed. It is grounded, in what non-standard operations problems can arise in determining the effective rate. It is determined what approaches to the determination of discount rate should be applied in the realities of Ukraine. It has been substantiated that in order to protect the position of judicial experts when preparing opinions on the issues of reflection of income and costs arising from the discount, it is necessary to develop and approve the methodology for determining the effective rate for calculating the discount.

scholarly journals Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession

2020 ◽  
Vol 110 (6) ◽  
pp. 1603-1634 ◽  
Author(s):  
Carlos Garriga ◽  
Aaron Hedlund
Keyword(s):  
Portfolio Choice ◽  
House Prices ◽  
Equilibrium Analysis ◽  
Tenure Choice ◽  
Cross Sectional ◽  
Mortgage Debt ◽  
Balance Sheets ◽  
The Great Recession ◽  
Model Features

Using a quantitative heterogeneous agents macro-housing model and detailed microdata, this paper studies the drivers of the 2006–2011 housing bust, its spillovers to consumption and the credit market, and the ability of mortgage rate interventions to accelerate the recovery. The model features tenure choice between owning and renting, rich portfolio choice, long-term defaultable mortgages, and endogenously illiquid housing from search frictions. The equilibrium analysis and empirical evidence suggest that the deterioration in house prices and liquidity, transmitted to consumption via balance sheets that vary in composition and depth, is central to explaining the observed aggregate and cross-sectional patterns. (JEL E23, E32, E44, G21, R31)

scholarly journals Three essays on innovation, corporate control and household consumption-based asset pricing

2021 ◽  
Author(s):  
◽  
Ruixiang Wang
Keyword(s):  
Risk Aversion ◽  
Low Frequency ◽  
Expected Returns ◽  
Daily Consumption ◽  
Cross Sectional ◽  
Industry Performance ◽  
Robust Tests ◽  
Risk Free Rate ◽  
Premium Risk ◽  
Free Rate

We propose a novel consumption measure that has a daily frequency and is based on real time shopping data. Our measure explains the joint equity-premium‚ risk-free rate puzzle with a risk aversion coefficient much lower than any other consumption measures. It explains the cross-sectional variation of expected returns on various portfolios and is the only consumption measure that passes Kleibergen and Zhan (Journal of Finance, 2020) robust tests. Our model decomposes consumption shocks into different frequencies of volatility and shows that ignoring short-term dynamics and intra-annual fluctuations explains the much higher risk aversion from low-frequency consumption measures. At zip-code level daily consumption, (a) consumption in blue areas suggests higher risk aversion than that in red areas; (b) only Democratic consumption beta explains a variation of cross-sectional returns, and is more sensitive to overall industry performance.

scholarly journals METHODOLOGICAL APPROACHES TO THE DISCOUNTING RATE CHOICE IN FORENSIC ECONOMICS RESEARCH

2021 ◽  
Author(s):  
T. Paientko ◽  
M. Rudaia
Keyword(s):  
Discount Rate ◽  
Expected Returns ◽  
Capital Asset Pricing ◽  
Global Risk ◽  
Risk Premiums ◽  
Local Risk ◽  
Methodological Approaches ◽  
Risk Free Rate ◽  
Free Rate

The article summarizes the methodological approaches to the choice of discount rate. The purpose of the article is to substantiate methodological approaches to the selection of the discount rate concerning the examination related to the recognition of assets and liabilities requiring discounted valuations in the financial statements. The practical application of the discount rate methodology is explored. One of the most important models for estimating expected returns on securities portfolios, equity and the basis for setting risk premiums and discount rates is the Capital Asset Pricing Model (CAPM). In spite of the fact that the mandatory use of the model in Ukraine is absent at legislative level, the correctness of its application is confirmed by long-term business practice worldwide. It has been determined, that in order to protect the position of legal experts in the preparation of opinions related to local risk-free rate for evaluation of the discount rate determination it is suggested to use global risk-free rate with the appropriate adjustments. The algorithm for calculating the discount rate on the model of capital assets cost, which is possible to apply in the current realities of Ukraine, is substantiated.

Theoretical and Methodological Problems of a 10-Year Follow-Up Program Evaluation Study

2002 ◽  
Vol 18 (3) ◽  
pp. 229-241 ◽  
Author(s):  
Kurt A. Heller ◽  
Ralph Reimann
Keyword(s):  
Program Evaluation ◽  
Evaluation Studies ◽  
Evaluation Study ◽  
Control Groups ◽  
Cross Sectional ◽  
Long Term Study ◽  
Partial Inclusion ◽  
Methodological Problems

Summary In this paper, conceptual and methodological problems of school program evaluation are discussed. The data were collected in conjunction with a 10 year cross-sectional/longitudinal investigation with partial inclusion of control groups. The experiences and conclusions resulting from this long-term study are revealing not only from the vantage point of the scientific evaluation of new scholastic models, but are also valuable for program evaluation studies in general, particularly in the field of gifted education.

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