We show that incorporating defined benefit pension funds in an asset pricing model with incomplete markets improves its ability to jointly match the historical equity premium and riskless rate, and has important implications for risk sharing. We emphasize the importance of the pension fund's...

Home owners are about twice as likely as renters to participate in the stock market, both in the USA and Sweden. This paper sets up a life-cycle portfolio choice model which generates this pattern of limited stock market participation. Calibrated to Swedish data, the model generates the stock...

We develop a model of asset pricing assuming that investor's behavior is habit forming. The model predicts that the effect of consumption growth shocks on the risk premium depends on the business cycle phase of the economy. This empirical implication is tested with a Markov-switching VAR model...

The stock market participation rate among homeowners is twice as high as among renters. This paper builds a life-cycle portfolio choice model with endogenous housing tenure choice. A stylized form of preference heterogeneity generates a substantial difference in participation rates. A majority...

The asset pricing model with external habit formation predicts that the equity premium depends on consumption changes relative to the habit level, implying a response that varies over the business cycle. We test this implication using a VAR model of the U.S. postwar economy whose time-varying...

The paper studies stochastic optimization of an intertemporal consumption model to allocate financial assets between risky and risk-free assets. We use a stochastic optimization technique, in which utility is maximized subject to a self-financing portfolio constraint. The papers in literature...

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...

In this paper we study the role of household portfolio rebalancing channel for the aggregate and redistributive effects of monetary policy. The transmission of monetary policy works not only through the usual income and substitution motives, but also through an endogenous portfolio rebalancing...

This paper studies the distribution of U.S. household income and wealth over the past seven decades. We introduce a newly compiled household-level dataset based on archival data from historical waves of the Survey of Consumer Finances (SCF). Complementing recent work on top income and wealth...

This paper introduces a new long-run dataset based on archival data from historical waves of the Survey of Consumer Finances. The household-level data allow us to study the joint distributions of household income and wealth since 1949. We expose the central importance of portfolio composition...