TY  - JOUR
AU  - Lustig,Hanno
AU  - Nieuwerburgh,Stijn Van
TI  - Can Housing Collateral Explain Long-Run Swings in Asset Returns?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12766
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12766
L1  - http://www.nber.org/papers/w12766.pdf
N1  - Author contact info:
Hanno Lustig
UCLA Anderson School of Management
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-1011
Fax: 310/825-9528
E-Mail: hlustig@anderson.ucla.edu

Stijn Van Nieuwerburgh
Stern School of Business
New York University
44 W 4th Street, Suite 9-120
New York, NY 10012
Tel: 646/284-4141
Fax: 646/284-4141
E-Mail: svnieuwe@stern.nyu.edu
AB  - To explain the low-frequency variation in US equity and debt returns in the 20th century, we solve an equilibrium model in which households face housing collateral constraints. An increase in the ratio of housing to human wealth loosens these borrowing constraintsthus allowing for more risk sharing.  The rate of return that households require for holding equity decreases as a result. Feeding the historical time series of US housing collateral into the model replicates four features of long-run asset returns. (1) It produces a fifteen percent equity premium during the 1930s and a slow decline of the equity premium from eleven percent in the 1960s to four percent in 2003. (2) It generates large unexpected capital gains for equity holders, especially in the 1990s. (3) The risk-free rate and the housing collateral ratio are strongly positively correlated at low frequencies. (4) The model mimics the slow decline in the volatility of stock returns and the riskless interest rate.
ER  -