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Total Wealth, Consumption and Portfolio Shares: Evidence and Theory

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Abstract

This study focuses on dynamic asset pricing implications for consumption and portfolio shares. First, we exploit the investors' intertemporal budget constraint and the induced national saving identity to construct US total wealth. We then document the empirical shares using aggregate consumption data and the Flow of Funds stock series on selected assets. Second, we study the theoretical shares predicted by a model with nonseparable preferences and time-varying investment opportunity sets. Finally, we formally confront empirical and theoretical allocations. In addition to illustrating the relevance of Roll's critique, and confirming many puzzles documented in the asset returns' literature, our results highlight other important anomalies. Cette étude se concentre sur les implications d'un modèle dynamique de valorisation des actifs pour les parts de la consommation et de portefeuille. Premièrement, nous utilisons la contrainte budgétaire intertemporelle des investisseurs et l'identité d'épargne nationale afin de construire la richesse totale américaine. Nous documentons par la suite les parts empiriques à partir des données de consommation agrégée et des Flux des Fonds pour certains actifs. Deuxièmement, nous étudions les parts théoriques prédites par un modèle à préférences non-séparables et un ensemble d'investissement non-constant. Finalement, nous confrontons formellement les allocations empiriques et théoriques. En plus d'illustrer la pertinence de la critique de Roll et de confirmer plusieurs énigmes documentées dans la littérature, nos résultats mettent en évidence d'autres anomalies importantes.

Suggested Citation

  • Michel Normandin & Pascal St-Amour, 1999. "Total Wealth, Consumption and Portfolio Shares: Evidence and Theory," Cahiers de recherche CREFE / CREFE Working Papers 96, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:96
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    References listed on IDEAS

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    1. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-430, March.
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    5. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, pages 149-163.
    6. Ghysels, Eric & Guay, Alain, 2003. "Structural change tests for simulated method of moments," Journal of Econometrics, Elsevier, pages 91-123.
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    8. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, pages 1383-1414.
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    More about this item

    Keywords

    Elasticity of intertemporal substitution; hedging; risk aversion; time-varying investment opportunity set;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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    1. Canadian Macro Study Group

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