This paper investigates the dynamics of individual portfolios in a unique data set containing the disaggregated wealth of all households in Sweden. Between 1999 and 2002, we observe little aggregate rebalancing in the financial portfolio of participants. These patterns conceal strong...

Finance theory restricts the time-series behaviour of valuation ratios and links the cross-section of stock prices to the level of the equity premium. This can be used to strengthen the evidence for predictability in stock returns. Steady-state valuation models are useful predictors of stock...

In a model where a variable Y is proportional to the present value, with constant discount rate, of expected future values of a variable y, the "spread" S - Y - qy will be stationary for some q whether or not y must be differenced to induce stationarity. Thus, Y and y are cointegrated. The model...

The use of price-earnings ratios and dividend-price ratios as forecasting variables for the stock market is examined using aggregate annual US data 1871 to 2000 and aggregate quarterly data for twelve countries since 1970. Various simple efficient-markets models of financial markets imply that...

A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector...

This paper presents an approximate analytical solution to the optimal consumption and portfolio choice problem of an infinitely lived investor with Epstein-Zin-Weil utility who faces a constant riskless interest rate and a time-varying equity premium. When the model is calibrated to U. S. stock...

This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectation hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations...

According to conventional wisdom, long-term bonds are appropriate for conservative long-term investors. This paper develops a model of optimal consumption and portfolio choice for infinite-lived investors with recursive utility who face stochastic interest rates, solves the model using an...