ABSTRACT This paper uses a disaggregated approach to study the volatility of common stocks at market, industry, and firm levels. Over period from 1962 1997 there has been noticeable increase in firm‐level relative market volatility. Accordingly, correlations among individual explanatory power model for typical stock have declined, whereas number needed achieve given level diversification increased. All measures move together countercyclically help predict GDP growth. Market tends lead other...

This paper studies the role of fluctuations in aggregate consumption–wealth ratio for predicting stock returns. Using U.S. quarterly market data, we find that these are strong predictors both real returns and excess over a Treasury bill rate. We also this variable is better forecaster future at short intermediate horizons than dividend yield, payout ratio, several other popular forecasting variables. Why should forecast asset returns? show wide class optimal models consumer behavior imply...

This paper explores the ability of conditional versions CAPM and consumption CAPM—jointly (C)CAPM—to explain cross section average stock returns. Central to our approach is use log consumption–wealth ratio as a conditioning variable. We demonstrate that such models perform far better than unconditional specifications about well Fama‐French three‐factor model on portfolios sorted by size book‐to‐market characteristics. The can account for difference in returns between low‐book‐to‐market...

Journal Article Reconciling the Return Predictability Evidence: The Review of Financial Studies: Evidence Get access Martin Lettau, Lettau 1Columbia University, New York CEPR, NBER Search for other works by this author on: Oxford Academic Google Scholar Stijn Van Nieuwerburgh 2New University and Studies, Volume 21, Issue 4, July 2008, Pages 1607–1652, https://doi.org/10.1093/rfs/hhm074 Published: 10 December 2007

Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption by Martin Lettau Sydney C. Ludvigson. Published volume 94, issue 1, pages 276-299 of American Economic Review, March 2004

ABSTRACT We propose a dynamic risk‐based model that captures the value premium. Firms are modeled as long‐lived assets distinguished by timing of cash flows. The stochastic discount factor is specified so shocks to aggregate dividends priced, but rate not. implies growth firms covary more with than do firms, which When calibrated explain stock market behavior, accounts for observed premium, high Sharpe ratios on and poor performance CAPM.

Download This Paper Open PDF in Browser Add to My Library Share: Permalink Using these links will ensure access this page indefinitely Copy URL DOI

Journal Article The Declining Equity Premium: What Role Does Macroeconomic Risk Play? Get access Martin Lettau, Lettau Search for other works by this author on: Oxford Academic Google Scholar Sydney C. Ludvigson, Ludvigson Jessica A. Wachter Review of Financial Studies, Volume 21, Issue 4, July 2008, Pages 1653–1687, https://doi.org/10.1093/rfs/hhm020 Published: 12 April 2007

Abstract We propose a new method for estimating latent asset pricing factors that fit the time series and cross-section of expected returns. Our estimator generalizes principal component analysis (PCA) by including penalty on error in approach finds weak with high Sharpe ratios PCA cannot detect. discover five economic meaning explain well characteristic-sorted portfolio The out-of-sample maximum ratio our is twice as large substantially smaller errors. imply significant amount...

ABSTRACT We document large, longer term, joint regime shifts in asset valuations and the real federal funds rate‐ spread. To interpret these findings, we estimate a novel macrofinance model of monetary transmission find that documented regimes coincide with parameters policy rule, long‐term consequences for interest rate. Estimates imply two‐thirds decline rate since early 1980s is attributable to changes policy. The explains how infrequent stance can generate persistent equity premium.

We provide novel evidence on the driving forcesbehind sharp increase in equity values over post-war era. From beginning of 1989 to end 2017, 23 trillion dollars real wealth was created by nonfinancial corporate sector. estimate that 54% this attributable a reallocation rents shareholders decelerating economy. Economic growth accounts for just 24%, followed lower interest rates (11%) and risk premium (11%). 1952 1988 less than half as much created, but economic accounted 92% it.

This paper uses a disaggregated approach to study the volatility of common stocks at market, industry, and firm levels. Over period 1962-97 there has been noticeable increase in firm-level relative market volatility. Accordingly, correlations among individual explanatory power model for typical stock have declined, while number needed achieve given level diversification increased. All measures move together countercyclically help predict GDP growth. Market tends lead other series. Factors...

This paper studies the role of detrended wealth in predicting stock returns. We call a transitory movement one that produces deviation from its shared trend with consumption and labor income. Using U.S. quarterly market data, we find these deviations are strong predictors both real returns excess over Treasury bill rate. also this variable is better forecaster future at short intermediate horizons than dividend yield, earnings payout ratio, several other popular forecasting variables.

Journal Article Investor Information, Long-Run Risk, and the Term Structure of Equity Get access Mariano M. Croce, Croce Search for other works by this author on: Oxford Academic Google Scholar Martin Lettau, Lettau Sydney C. Ludvigson The Review Financial Studies, Volume 28, Issue 3, March 2015, Pages 706–742, https://doi.org/10.1093/rfs/hhu084 Published: 14 November 2014

Exchange-traded funds (ETFs) represent one of the most important financial innovations in decades. An ETF is an investment vehicle, with a specific architecture that typically seeks to track performance index. The first US-listed ETF, SPDR, was launched by State Street January 1993 and S&P 500 It still today largest far, assets $178 billion. Following introduction new ETFs were tracking broad domestic international indices, more specialized sector, region, or country indexes. In recent...

Missing data is a prevalent, yet often ignored, feature of company fundamentals. In this paper, we document the structure missing financial and show how to systematically deal with it. comprehensive empirical study establish four key stylized facts. First, issue profound: it affects over 70% firms that represent about half total market cap. Second, problem becomes particularly severe when requiring multiple characteristics be present. Third, firm fundamentals are not missing-at-random,...

This paper uses a disaggregated approach to study the volatility of common stocks at market, industry, and firm levels.Over period 1962-97 there has been noticeable increase in firm-level relative market volatility.Accordingly, correlations among individual explanatory power model for typical stock have declined, while number needed achieve given level diversification increased.All measures move together countercyclically help predict GDP growth.Market tends lead other series.Factors that...