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Luxury Goods and the Equity Premium / Yacine Ait-Sahalia, Jonathan A. Parker, Motohiro Yogo.
- Format:
- Book
- Author/Creator:
- Ait-Sahalia, Yacine.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w8417.
- NBER working paper series no. w8417
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2001.
- Summary:
- This paper evaluates the return on equity using novel data on the consumption of luxury goods. Specifying household utility as a nonhomothetic function of the consumption of both a luxury good and a basic good, we derive and evaluate the riskiness of equity in such a world. Household survey and national accounts consumption data overstate the risk aversion necessary to match the observed equity premium because they contain basic consumption goods. The risk aversion implied by equity returns and the consumption of luxury goods is more than an order of magnitude less than found using national accounts consumption data. For the very rich, the equity premium is much less of a puzzle.
- Notes:
- Print version record
- August 2001.
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