To explain the variation in US asset 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 constraints. It allows for more risk sharing and decreases the rate of return that households require for holding equity. This collateral mechanism can explain the time-variation...

This paper proposes new performance decomposition measures that allow one to analyse the sources of returns on the international equity holdings of a large cross-section of UK pension funds. The results suggest that the pension funds earned negative returns both from international market timing and from selecting stocks within individual foreign regions. The average fund underperformed a passiv...

Data for the daily net purchases by foreigners in six Asian emerging equity markets over 1999-2001 provide strong evidence of positive-feedback trading with respect to recent domestic, U.S., and regional equity returns. There is also strong contemporaneous correlation between equity returns and net inflows, which appears to primarily reflect price pressures from demand shocks. The estimated pri...

We explore whether the pattern of international equity returns, equity portfolio flows, and exchange rate returns are consistent with the hypothesis that (unhedged) global investors rebalance their portfolio in order to limit their exchange rate exposure when there are (1) relative equity return and (2) exchange rate shocks. We also explore whether (3) equity flow shocks influence the exchange ...

One of the most prominent stylized facts in corporate finance is that firms are more likely to issue equity following periods of high stock returns. We document that firms exhibit such timing behavior only in response to high returns that coincide with strong institutional investor demand for their stock. When not accompanied by institutional purchases, stock price increases have little impact ...

The tax burden on equity securities has varied substantially since US federal income taxes were introduced in 1913. Taxes on equity securities vary over time due to changes in dividend and capital gains tax rates and due to changes in corporate payout policies. Equity taxes also vary across firms due to persistent differences in propensities to pay dividends. Despite the continuing policy debat...

This article explores recent trends in the size and performance of the equity investments of state and local pension plans. It also provides a context for the discussion about investing Social Security trust fund reserves in private equities. Equity holdings and returns for five of the largest private pension plans were compared with those of state and local pension plans. Key findings discusse...

In a stochastic economy with overlapping generations, fiscal policy affects the allocation of aggregate risks. The paper shows how to compute the welfare effects of marginal policy changes that shift risk across cohorts, in general and for an application to social security equity investments. I estimate the relevant correlations between macroeconomic shocks and equity returns from 1874-1996 U.S...

In this paper, we study the relationship between default probability and stock returns. Using the market-based measure of Expected Default Frequency— (EDF—) constructed by Moody’s KMV, we first demonstrate that higher default probabilities are not necessarily associated with higher expected stock returns, a finding that complements the existing empirical evidence. We then show that the puzzling...