Asset holding and consumption volatility
AbstractWe investigate the possibility that limited participation in asset markets, and the stock market in particular, might explain the lack of correspondence between the sample moments of the intertemporal marginal rate of substitution and asset returns in U.K. data. We estimate ownership probabilities to separate “likely” shareholders from nonshareholders, enabling us to control for changing composition effects as well as selection into the group. We then construct estimates of the IMRS for each of these different groups and consider their time-series properties. We find that the consumption growth of shareholders is more volatile than that of nonshareholders and more highly correlated with excess returns to shares. In particular, one cannot reject the predictions of the consumption capital asset pricing model for the group of households predicted to own both assets. This is in contrast to the failure of the model when estimated on data for all households.
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Bibliographic InfoPaper provided by University College London in its series Open Access publications from University College London with number http://discovery.ucl.ac.uk/12650/.
Date of creation: Aug 2002
Date of revision:
Publication status: Published in Journal of Political Economy (2002-08) v.110, p.771-792
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Web page: http://www.ucl.ac.uk
Other versions of this item:
- Attanasio, O & Banks, JW & Tanner, S, 2002. "Assets Holding and Consumption Volatility," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
- Orazio Attanasio & James Banks & Sarah Tanner, 1998. "Asset Holding and Consumption Volatility," NBER Working Papers 6567, National Bureau of Economic Research, Inc.
- Orazio Attanasio & James Banks & Sarah Tanner, 1998. "Asset holding and consumption volatility," IFS Working Papers W98/08, Institute for Fiscal Studies.
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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