The Wealth-Consumption Ratio
Name
Verdelhan_The wealth.pdf
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1.23 MB
Format
Adobe PDF
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Author(s)
Verdelhan, Adrien Frederic
Lustig, Hanno
Van Nieuwerburgh, Stijn
Date Issued
April 2013
Journal
Review of Asset Pricing Studies
Publisher
Oxford University Press
Citation
Lustig, H., S. Van Nieuwerburgh, and A. Verdelhan. “The Wealth-Consumption Ratio.” Review of Asset Pricing Studies 3, no. 1 (June 1, 2013): 38–94.
Version
Author's final manuscript
Abstract
We derive new estimates of total wealth, the returns on total wealth, and the wealth effect on consumption. We estimate the prices of aggregate risk from bond yields and stock returns using a no-arbitrage model. Using these risk prices, we compute total wealth as the price of a claim to aggregate consumption. We find that U.S. households have a surprising amount of total wealth, most of it human wealth. This wealth is much less risky than stock market wealth. Events in long-term bond markets, not stock markets, drive most total wealth fluctuations. The wealth effect on consumption is small and varies over time with real interest rates.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/rapstu/rat002
