Housing, home production, and the equity- and value-premium puzzles

Abstract

a b s t r a c tWe ask if a standard representative agent model with a home-production sector can resolve the equity-premium or value-premium puzzles. In the model, agents value market (numeraire) consumption and a home consumption good that is produced from the stock of housing, home labor, and a labor-augmenting technology shock. We construct the unobserved quantity of the home consumption good by combining observed data on numeraire consumption, hours worked in the marketplace, and rents paid on housing with restrictions of the model. We test the first-order conditions of the model using GMM. The model is rejected by the data; it cannot explain either the historical equity-premium or the valuepremium.

Housing Over Time and Over the Life Cycle: A Structural Estimation

“…Among the few econometric studies of housing preferences, there has been little consensus on the magnitude of this coefficient. Studies based on macro level aggregate consumption or asset price data frequently suggest a value larger than 1—implying that households reduce expenditure share on housing when house prices move up relative to prices of nonhousing consumption (Piazzesi et al., ; Davis and Martin, ). These studies have typically assumed the existence of a representative agent and abstracted from market incompleteness and informational frictions, despite strong evidence of household heterogeneity and housing adjustment cost documented in the literature (Carroll and Dunn, ; Attanasio, ).…”

Value versus Growth International Real Estate Investment

“…Chen and Zhao's (2009) findings agree with Lakonishok, Shleifer and Vishny (1994), MacKinlay (1995), La Porta et al (1995, 1997) and Daniel and Titman (1996) that risk‐based explanations do not provide a credible rationale for the observed return behavior (see Jaffe, Keim and Westerfield 1989, Chan, Hamao and Lakonishok 1991, Chopra, Lakonishok and Ritter 1992, Capaul, Rowley and Sharpe 1993, Dreman and Lufkin 1997, Bauman, Conover and Miller 1998, 2001, Nam, Pyun and Avard 2001, Gomes, Kogan and Zhang 2003, Chan and Lakonishok 2004, Davis and Martin 2009).…”

Asset Pricing Kernels in an OLG Economy with Housing

“…They specifically introduce an incomplete market due to housing collateral constraint, which keeps the household from defaulting. Davis and Martin (2009), working with home production with housing, estimate the intratemporal elasticity of substitution (ES) between housing and consumption. Similarly, Bansal, Tallarini, and Yaron (2008) estimate the intratemporal elasticity of substitution using composite wealth return (Note 10).…”