This paper explains the size and value “anomalies†in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market’s future cash flows and one reflecting news about...

This paper explains the size and value “anomalies” in stock returns using an economically motivated two-beta model. We break the CAPMbeta of a stock with the market portfolio into two components, one reflecting news about the market’s future cash flows and one reflecting news about the...

Home mortgages are the most significant financial contract for many households. The form of this contract is correspondingly important. This paper studies the choice between fixed-rate (FRM) and adjustable-rate (ARM) mortgages. In an environment with uncertain inflation, nominal FRMs have risky...

A number of variables are correlated with subsequent returns on the aggregate US stock market in the 20th Century. Some of these variables are stock market valuation ratios, others reflect patterns in corporate finance or the levels of shortand long-term interest rates. Amit Goyal and Ivo Welch...

Empirical studies have suggested that stock returns can be predicted by ï¬nancial variables such as the dividend-price ratio. However, these studies typically ignore the high persistence of predictor variables, which can make ï¬rst-order asymptotics a poor approximation in ï¬nite samples....

Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households’ consumption decisions. Rising house prices may stimulate consumption by increasing households’ perceived wealth, or by relaxing...

This paper investigates the efficiency of household investment decisions in a unique dataset containing the disaggregated wealth and income of the entire population of Sweden. The analysis focuses on two main sources of inefficiency in the financial portfolio: underdiversification of risky...

Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households’ consumption decisions. Rising house prices may stimulate consumption by increasing households’ perceived wealth, or by relaxing...

The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices (driven by movements in the equity risk premium), while the cash flows of value stocks are particularly sensitive to permanent movements in aggregate stock prices (driven by market-wide...