The Wealth-Consumption Ratio
Author(s)Verdelhan, Adrien Frederic; Lustig, Hanno; Van Nieuwerburgh, Stijn
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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.
DepartmentSloan School of Management
Review of Asset Pricing Studies
Oxford University Press
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.
Author's final manuscript