We estimate the portfolio effect of changes in social security wealth exploiting a decade of Italian pension reforms as a source of exogenous variation. The Italian Survey of Household Income and Wealth records detailed portfolio data and elicits expectations of retirement outcomes, thus...

The instability of wealth effect on consumption over the business cycles is widely recognized in recent empirical studies. We develop a consumption and investment problem for an investor with direct preference for wealth where the drift and volatility of asset return switches between two...

Bitcoin (BTC) returns exhibit pronounced positive skewness with a third central moment of approximately 150% per year. They are well characterized by a mixture of Normals distribution with one “normal” regime and a small probability of a “bliss” regime where the price appreciation is...

This paper shows how risk may aggravate fluctuations in economies with imperfect insurance and multiple assets. A two period job matching model is studied, in which risk averse agents act both as workers and as entrepreneurs. They choose between two types of investment: one type is riskless,...

This paper analyzes the counter-cyclical behavior of asset trading volume and the effect of idiosyncratic income to trading decisions of households. The model is in the class of DSGE models with incomplete markets. The paper makes two contributions: firstly, a structural break in trading volume...

We present evidence that the mix of transitory and permanent shocks to consumption is changing over time. We study implications of this finding for asset prices. The uncovered dynamics of consumption implies modestly upward sloping real bond and equity curves, upward sloping nominal yield curve,...

In this chapter, we review and discuss the large body of research that has developed over the past 10-plus years that explores the interconnection of macroeconomics, finance, and housing. We focus on three major topics—housing and the business cycle, housing and portfolio choice, and housing...

This paper proposes a structural approach to long-horizon asset allocation. In particular, the investor draws inferences about asset returns from a vector autoregression (VAR) with economic restrictions on the intercept, slope, and covariance matrix implied by the long-run risk model of Bansal...

We develop an asset pricing model with external habit formation. The model predicts that the effect of consumption shocks on the equity premium depends on the business cycle. We test this empirical implication using a VAR model of the U.S. postwar economy whose parameters are estimated...

I show that countercyclical earnings dynamics can have quantitatively important effects on saving and portfolio choice decisions over the life cycle. During expansions (recessions) when expected future earnings growth is high (low), households save less (more) and also invest a higher (lower)...