TY  - JOUR
AU  - Ait-Sahalia,Yacine
AU  - Parker,Jonathan A.
AU  - Yogo,Motohiro
TI  - Luxury Goods and the Equity Premium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8417
PY  - 2001
Y2  - August 2001
UR  - http://www.nber.org/papers/w8417
L1  - http://www.nber.org/papers/w8417.pdf
N1  - Author contact info:
Yacine Ait-Sahalia
Department of Economics
Fisher Hall
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-4015
Fax: 609/258-0719
E-Mail: yacine@princeton.edu

Jonathan Parker
Finance Department
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208-2001
Tel: 847/491-4113
Fax: 847/491-5719
E-Mail: Jonathan-Parker@Kellogg.Northwestern.edu

Motohiro Yogo
Federal Reserve Bank of Minneapolis
Research Department
90 Hennepin Avenue
Minneapolis, MN 55401-1804
Tel: 612/204-6476
E-Mail: yogo@minneapolisfed.org
AB  - 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.
ER  -