Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. Across 16 advanced economies since 1870, long-run housing returns are comparable to equity returns but with lower volatility and lower covariance with consumption growth, implying risk aversion parameters for housing and total wealth at least 2x those implied by equities. The authors argue limited participation, idiosyncratic housing risk, transaction costs, and liquidity premiums do little to resolve this puzzle.

Òscar Jordà, Moritz Schularick, Alan Taylor National Bureau of Economic Research
Date Posted:
Is Database:
Database

Housing returns in the long run are comparable to equities but exhibit lower volatility and lower covariance with consumption growth, according to @MoritzSchularick @AlanMTaylor @oscarjorda @nberpubsorg.

Do housing returns match equities while carrying less risk?

Core argument: Across 16 advanced economies from 1870 to the present, long-run housing returns are comparable to equity returns but with lower volatility and lower covariance with consumption growth.

Analyzing data from 1870 to the present across 16 advanced economies, housing returns in the long run are comparable to equities but exhibit lower volatility and lower covariance with consumption growth. This suggests that housing offers a more stable investment option with less risk exposure compared to equities. The findings indicate that the implied risk aversion parameters for housing wealth and total wealth are significantly larger than those for equities, often by a factor of 2 or more. This challenges traditional models and suggests that factors like limited participation, idiosyncratic housing risk, transaction costs, or liquidity premiums play minimal roles in resolving the risk premium puzzle. Consequently, housing emerges as a viable component of a diversified investment portfolio, offering substantial returns with reduced risk.

Takeaways by Macro Roundup® AI

  1. Across 16 advanced economies from 1870 to the present, long-run housing returns are comparable to equity returns but with lower volatility and lower covariance with consumption growth.
  2. Implied risk aversion parameters for housing wealth and total wealth are larger than those for equities, often by a factor of 2 or more, challenging traditional asset-pricing models.
  3. The findings suggest that limited participation, idiosyncratic housing risk, transaction costs, and liquidity premiums play minimal roles in resolving the risk premium puzzle.

"...The risk premium puzzle is worse than you think. Using a new database for the U.S. and 15 other advanced economies from 1870 to the present that includes housing as well as equity returns (to capture the full risky capital portfolio of the representative agent),standard calculations using returns to total wealth and consumption show that: housing returns in the long run are comparable to those of equities, and yet housing returns have lower volatility and lower covariance with consumption growth than equities.The same applies to a weighted total-wealth portfolio, and over a range of horizons. As a result, the implied risk aversion parameters for housing wealth and total wealth are even larger than those for equities, often by a factor of 2 or more. We find that more exotic models cannot resolve these even bigger puzzles, and we see little role for limited participation, idiosyncratic housing risk, transaction costs, or liquidity premiums...."

Òscar Jordà, Moritz Schularick, Alan Taylor, "The Total Risk Premium Puzzle," National Bureau of Economic Research, March 2019, https://www.nber.org/papers/w25653

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