TY - JOUR AU - Lustig,Hanno AU - Nieuwerburgh,Stijn Van TI - Housing Collateral, Consumption Insurance and Risk Premia: An Empirical Perpective JF - National Bureau of Economic Research Working Paper Series VL - No. 9959 PY - 2003 Y2 - September 2003 UR - http://www.nber.org/papers/w9959 L1 - http://www.nber.org/papers/w9959.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 - In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the conditional market price of risk. Using aggregate data for the US, we find that a decrease in the ratio of housing wealth to human wealth predicts higher returns on stocks. Conditional on this ratio, the covariance of returns with aggregate risk factors explains eighty percent of the cross-sectional variation in annual size and book-to-market portfolio returns. A data appendix for this paper is available. ER -