We extend the classic Merton (1969, 1971) problem that investigates the joint consumption-savings and portfolio-selection problem under capital risk by assuming sophisticated but time-inconsistent agents. We introduce stochastic hyperbolic preferences as in Harris and Laibson (2013) and find...

This paper posits a notion of the value of an individual's human capital and the associated return on human capital. These concepts are examined using U.S. data on male earnings and financial asset returns. We find that (1) the value of human capital is far below the value implied by discounting...

The paper investigates the role of the Intertemporal Elasticity of Substitution () in determining the equity premium. This is done in an overlapping generations economy populated by agents that live for 2 periods and maximize a Kihlstrom-Mirman expected utility function. The equity premium...

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner's house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth...

In U.S. data, value stocks have higher expected excess returns and higher CAPM alphas than growth stocks. We find the external-habit model of Campbell and Cochrane (1999) can generate a value premium in both CAPM alpha and expected excess return so long as the persistence of the log...

This paper characterizes the solution to a consumption/savings decision problem in which one of the consumption goods involves transaction costs. It then analyzes how such adjustment costs affect consumers' risk attitudes. Previous studies have suggested that transaction costs, by resulting in...

This paper studies two frequently observed portfolio behaviors that are seemingly inconsistent with rational portfolio choice. The first is the tendency of workers and entrepreneurs to hold their company's stock. The second is the propensity of workers to limit their equity holdings through...

Which pricing kernel restrictions are needed to make low dimensional Markov models consistent with given sets of predictions on aggregate stock-market fluctuations ? This paper develops theoretical test conditions addressing this and related reverse engineering issues arising within a fairly...

In this paper we propose a generalization of the comonotonicity notion by introducing and exploring the concept of conditional comonotonicity. We characterize this notion and we show on examples that conditional comonotonicity is the natural extension of the concept of comonotonicity to dynamic...

In this paper, we develop a theoretical stock valuation model that takes into account the long-run sensitivity of dividends to various economic factors. Our valuation process integrates the multidimensionality of uncertainty, as well as the long-run concept of risk (recently proposed in the...