This file is part of IDEAS , which uses RePEc data
[ Papers |
Articles |
Software |
Books |
Chapters |
Authors |
Institutions |
JEL Classification |
NEP reports |
Search |
New papers by email |
Author registration |
Rankings |
Volunteers |
FAQ |
Blog |
Help! ]
Proprietary Income, Entrepreneurial Risk, and the Predictability of U.S. Stock Returns Author info | Abstract | Publisher info | Download info | Related research | Statistics Mathias Hoffmann ()
Additional information is available for the following
registered author(s):
Small businesses tend to be owned by wealthy households. Such entrepreneur households also own a large share of U.S. stock market wealth. Fluctuations in entrepreneurs’ hunger for risk could therefore help explain time variation in the equity premium. The paper suggests an entrepreneurial distress factor that is based on a cointegrating relationship between consumption and income from proprietary and non-proprietary wealth. I call this factor the cpy residual. It reflects cyclical fluctuations in proprietary income, is highly correlated with cross-sectional measures of idiosyncratic entrepreneurial risk and has considerable forecasting power for U.S. stock returns. In line with the theoretical mechanism, the correlation between cpy and the stock market has been declining since the beginning of the 1980s as stock market participation has widened and as entrepreneurial risk has become more easily diversifiable in the wake of U.S. state-level bank deregulation.
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page . Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 1712.
Download reference. The following formats are available: HTML
(with abstract ),
plain text
(with abstract ),
BibTeX ,
RIS (EndNote, RefMan, ProCite),
ReDIF
Length:
Date of creation: 2006Date of revision:
Handle: RePEc:ces:ceswps:_1712Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich Phone: +49 (89) 9224-0 Fax: +49 (89) 985369 Web page: http://www.cesifo.de
For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).
Keywords: non-insurable background risk ; entrepreneurial income ; equity risk premium ; long-horizon predictability ; Other versions of this item:
Find related papers by JEL classification: E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports :
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: John Y. Campbell & John H. Cochrane, 1994.
"By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior ,"
CRSP working papers
412, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
[Downloadable!]
Other versions: Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2002.
"The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle? ,"
American Economic Review ,
American Economic Association, vol. 92(4), pages 745-778, September.
[Downloadable!]
Poterba, James M & Venti, Steven F & Wise, David A, 1998.
"401(k) Plans and Future Patterns of Retirement Saving ,"
American Economic Review ,
American Economic Association, vol. 88(2), pages 179-84, May.
[Downloadable!] (restricted)
John Y. Campbell & N. Gregory Mankiw, 1989.
"Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence ,"
NBER Chapters ,
in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246
National Bureau of Economic Research, Inc.
[Downloadable!]
Other versions: Martin Lettau & Sydney Ludvigson, 2003.
"Expected Returns and Expected Dividend Growth ,"
NBER Working Papers
9605, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Lettau, Martin & Ludvigson, Sydney, 2002.
"Expected Returns and Expected Dividend Growth ,"
CEPR Discussion Papers
3507, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Lettau, Martin & Ludvigson, Sydney C., 2005.
"Expected returns and expected dividend growth ,"
Journal of Financial Economics ,
Elsevier, vol. 76(3), pages 583-626, June.
[Downloadable!] (restricted) Owen Lamont, 1998.
"Earnings and Expected Returns ,"
Journal of Finance ,
American Finance Association, vol. 53(5), pages 1563-1587, October.
[Downloadable!] (restricted)
Gonzalo, Jesus & Granger, Clive W J, 1995.
"Estimation of Common Long-Memory Components in Cointegrated Systems ,"
Journal of Business & Economic Statistics ,
American Statistical Association, vol. 13(1), pages 27-35, January.
Other versions:
Jesus Gonzalo & Clive W.J. Granger, 1991.
"Estimation of Common Long-Memory Components in Cointegrated Systems ,"
University of California at San Diego, Economics Working Paper Series
91-33, Department of Economics, UC San Diego.
Gonzalo, J. & Granger, C., 1992.
"Estimation of Common Long-Memory Components in Cointegrated Systems ,"
Papers
4, Boston University - Department of Economics.
Proietti, Tommaso, 1997.
"Short-Run Dynamics in Cointegrated Systems ,"
Oxford Bulletin of Economics and Statistics ,
Department of Economics, University of Oxford, vol. 59(3), pages 405-22, August.
N. Gregory Mankiw & Stephen P. Zeldes, 1991.
"The Consumption of Stockholders and Non-Stockholders ,"
NBER Working Papers
3402, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Mankiw, N.G. & Zeldes, S.P., 1990.
"The Consumption Of Stockholders And Non-Stockholders ,"
Weiss Center Working Papers
23-90, Wharton School - Weiss Center for International Financial Research.
Mankiw, N. Gregory & Zeldes, Stephen P., 1991.
"The consumption of stockholders and nonstockholders ,"
Journal of Financial Economics ,
Elsevier, vol. 29(1), pages 97-112, March.
[Downloadable!] (restricted) Stock, James H & Watson, Mark W, 1993.
"A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems ,"
Econometrica ,
Econometric Society, vol. 61(4), pages 783-820, July.
[Downloadable!] (restricted)
Other versions: Heaton, John & Lucas, Deborah, 2000.
"Portfolio Choice in the Presence of Background Risk ,"
Economic Journal ,
Royal Economic Society, vol. 110(460), pages 1-26, January.
[Downloadable!] (restricted)
Sydney Ludvigson & Martin Lettau, 1999.
"Consumption, aggregate wealth and expected stock returns ,"
Staff Reports
77, Federal Reserve Bank of New York.
[Downloadable!]
Other versions: Jayaratne, Jith & Strahan, Philip E, 1996.
"The Finance-Growth Nexus: Evidence from Bank Branch Deregulation ,"
The Quarterly Journal of Economics ,
MIT Press, vol. 111(3), pages 639-70, August.
[Downloadable!] (restricted)
John Heaton & Deborah Lucas, 2000.
"Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk ,"
Journal of Finance ,
American Finance Association, vol. 55(3), pages 1163-1198, 06.
[Downloadable!] (restricted)
Hoffmann, Mathias, 2001.
"Long run recursive VAR models and QR decompositions ,"
Economics Letters ,
Elsevier, vol. 73(1), pages 15-20, October.
[Downloadable!] (restricted)
Other versions: Whitney K. Newey & Kenneth D. West, 1986.
"A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix ,"
NBER Technical Working Papers
0055, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Newey, Whitney K & West, Kenneth D, 1987.
"A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix ,"
Econometrica ,
Econometric Society, vol. 55(3), pages 703-08, May.
[Downloadable!] (restricted) Cochrane, John H, 1994.
"Permanent and Transitory Components of GNP and Stock Prices ,"
The Quarterly Journal of Economics ,
MIT Press, vol. 109(1), pages 241-65, February.
[Downloadable!] (restricted)
Martin Lettau, 2001.
"Consumption, Aggregate Wealth, and Expected Stock Returns ,"
Journal of Finance ,
American Finance Association, vol. 56(3), pages 815-849, 06.
[Downloadable!] (restricted)
John Y. Campbell & John Cochrane, 1999.
"Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior ,"
Journal of Political Economy ,
University of Chicago Press, vol. 107(2), pages 205-251, April.
[Downloadable!] (restricted)
repec:fth:harver:1435 is not listed on IDEAS
Martin Lettau & Sydney Ludvigson, 2003.
"Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption ,"
NBER Working Papers
9848, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions: Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002.
"The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle? ,"
NBER Working Papers
8876, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Polkovnichenko, Valery, 2004.
"Limited stock market participation and the equity premium ,"
Finance Research Letters ,
Elsevier, vol. 1(1), pages 24-34, March.
[Downloadable!] (restricted)
Rudd, Jeremy & Whelan, Karl, 2002.
"A Note on the Cointegration of Consumption, Income, and Wealth ,"
Research Technical Papers
5/RT/02, Central Bank & Financial Services Authority of Ireland (CBFSAI).
[Downloadable!]
Other versions: Bent E. Sørensen & Yuliya Demyanyk & Charlotte Ostergaard, 2005.
"U.S. Banking Deregulation, Small Businesses,and Interstate Insurance of Personal Income ,"
Working Papers
2005-02, Department of Economics, University of Houston.
[Downloadable!]
Other versions:
Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sørensen, 2006.
"FU.S. banking deregulation, small businesses, and interstate insurance of personal income ,"
Working Paper
2006/09, Norges Bank.
[Downloadable!] Demyanyk, Yuliya & Ostergaard, Charlotte & Sorensen, Bent E, 2006.
"US Banking Deregulation, Small Businesses and Interstate Insurance of Personal Income ,"
CEPR Discussion Papers
5863, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sørensen, 2007.
"U.S. Banking Deregulation, Small Businesses, and Interstate Insurance of Personal Income ,"
Journal of Finance ,
American Finance Association, vol. 62(6), pages 2763-2801, December.
[Downloadable!] (restricted) Mark Gertler & R. Glenn Hubbard, 1993.
"Corporate Financial Policy, Taxation, and Macroeconomic Risk ,"
RAND Journal of Economics ,
The RAND Corporation, vol. 24(2), pages 286-303, Summer.
[Downloadable!] (restricted)
Other versions: Constantinides, George M, 1990.
"Habit Formation: A Resolution of the Equity Premium Puzzle ,"
Journal of Political Economy ,
University of Chicago Press, vol. 98(3), pages 519-43, June.
[Downloadable!] (restricted)
Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Britta Hamburg & Mathias Hoffmann & Joachim Keller, 2008.
"Consumption, wealth and business cycles in Germany ,"
Empirical Economics ,
Springer, vol. 34(3), pages 451-476, June.
[Downloadable!] (restricted)
Other versions: Mathias Hoffmann & Thomas Nitschka, 2008.
"Securitization of Mortgage Debt, Asset Prices and International Risk Sharing ,"
IEW - Working Papers
iewwp376, Institute for Empirical Research in Economics - IEW.
[Downloadable!]
Other versions: Thomas Nitschka, 2008.
"Idiosyncratic Consumption Risk and Predictability of the Carry Trade Premium: Euro Area Evidence ,"
IEW - Working Papers
iewwp387, Institute for Empirical Research in Economics - IEW.
[Downloadable!]
Access and
download statistics Did you know? RePEc encourages publishers to make their bibliographic data freely available to the public.
This page was last updated on 2009-11-3.
This information is provided to you by IDEAS at the Department of Economics , College of Liberal Arts and Sciences , University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics .