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Research Seminars & Workshops @ IRES

Mr Zhao Daxuan
Institute of Real Estate Studies, NUS

Housing, Wealth Composition and Expected Stock Return


18 September 2012, Tuesday


12.30pm - 2.00pm


RMI Executive Seminar Room
21 Heng Mui Keng Terrace, Level 4


This paper considers a consumption-based asset pricing model where housing is explicitly modeled both as an asset and a consumption good. As a consumption good, housing expenditure share is modeled as a novel risk factor. As an asset, it is the major component of wealth other than financial asset. The fluctuation of aggregate housing-financial wealth ratio, as a consequence of irrational housing market, impacts the budget constraints of households. It increases household's exposure to risk and shifts the conditional distribution of consumption growth. Using United States aggregate data, we find that the fluctuation of housing-financial wealth ratio is a strong predictor for expected stock return. Conditional on this factor, the covariances of returns with aggregate risk factors explain high ratio of the cross-sectional variation in annual returns of size and book-to-market portfolio. The micro mechanism of this asset pricing model is also supported by the micro data during subprime crisis.

For full paper, download here/images/icon/pdf-icon.gif

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