Housing is a major component of wealth. Since house prices fluctuate considerably over time, it is important to understand how these fluctuations affect households' consumption decisions. Rising house prices may stimulate consumption by increasing households' perceived wealth, or by relaxing...

This paper solves a dynamic model of a household's decision to default on its mortgage, taking into account labor income, house price, inflation, and interest rate risk. Mortgage default is triggered by negative home equity, which results from declining house prices in a low inflation...

A typical household has a home mortgage as its most significant financial contract. The form of this contract is correspondingly important. This paper studies the choice between a fixed-rate (FRM) and an adjustable-rate (ARM) mortgage. In an environment with uncertain inflation, a nominal FRM...

If household portfolios are constrained by borrowing and short-sales restrictions asset markets, then alternative retirement savings systems may affect household welfare by relaxing these constraints. This paper uses a calibrated partial-equilibrium model of optimal life-cycle portfolio choice...

Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that both years of investment experience and feedback from investment returns have significant effects on investor behavior, favored stock styles, and performance. We identify two...

The relative popularity of adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) varies considerably both across countries and over time. We ask how movements in current and expected future interest rates affect the share of ARMs in total mortgage issuance. Using a nine-country panel...

Expectations theories of asset returns may be interpreted as stating either that risk premia are zero, or that they are constant through time. Under the former interpretation, different versions of the expectations theory of the term structure are inconsistent with one another, but I show that...

Recent research in empirical finance has documented that expected excess returns on bonds and stocks, real interest rates, and risk shift over time in predictable ways. Furthermore, these shifts tend to persist over long periods of time. In this paper we propose an empirical model that is able...

A number of variables are correlated with subsequent returns on the aggregate US stock market in the 20th Century. Some of these variables are stock market valuation ratios, others reflect patterns in corporate finance or the levels of short- and long-term interest rates. Amit Goyal and Ivo...

This paper explores the effect of equity volatility on corporate bond yields. Panel data for the late 1990's show that idiosyncratic firm-level volatility can explain as much cross-sectional variation in yields as can credit ratings. This finding, together with the upward trend in idiosyncratic...