Essays on household finance and asset pricing.

摘要

This dissertation contains two essays to examine the impact of heterogeneous households' investment and consumption decisions on asset returns.;The first essay uses a long panel data set to investigate the empirical importance of background risks on a household's asset allocation and on asset returns. A set of household-level background risk variables is constructed to capture the entire covariance structure between financial assets and three types of non-traded or illiquid assets - labor, housing, and private business. These background risks are shown to be statistically and economically important for a household's stock market participation and portfolio choice. When all background risk variables shift one standard deviation from their sample means, a household will decrease its likelihood to participate in the stock market by 12 percent and reduce the proportion of stock holdings by 4 percent. Moreover, a stock more highly correlated with background risks is associated with a higher risk premium. Including the background risk factors significantly improves the performance of three benchmark asset pricing models, i.e., the consumption-based CAPM, CAPM, and the Fama-French three-factor model.;The second essay examines the "spirit of capitalism" preferences under which an agent's utility depends not only on her consumption but also on her wealth-induced social status. The agent's social status is defined as (i) the absolute value of her wealth (Model 1); (ii) the ratio of her wealth to the average social wealth (Model 2); or (iii) the ratio of her wealth to the average wealth of her social group (Model 3). Empirical results suggest that the utility functions with relative social status (Models 2 and 3) significantly outperform the standard power utility function in explaining the historical stock returns while the utility function with absolute social status (Model 1) does not. Moreover, the inclusion of social status increases the volatility of the implied stochastic discount factor and decreases the implied risk-free rate. Hence, "spirit of capitalism" preferences help explain the excess volatility puzzle and the risk-free rate puzzle. However, these preferences cannot fully explain the equity premium puzzle because the estimated effective risk aversion is still too high.