{"id":524,"date":"2017-09-24T02:44:17","date_gmt":"2017-09-24T02:44:17","guid":{"rendered":"http:\/\/mitmgmtfaculty.mit.edu\/japarker\/?page_id=524"},"modified":"2025-02-20T15:46:40","modified_gmt":"2025-02-20T15:46:40","slug":"luxury-goods","status":"publish","type":"page","link":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/luxury-goods\/","title":{"rendered":"Summary: Luxury Goods and the Equity Premium"},"content":{"rendered":"<div id=\"pl-524\"  class=\"panel-layout\" ><div id=\"pg-524-0\"  class=\"panel-grid panel-no-style\" ><div id=\"pgc-524-0-0\"  class=\"panel-grid-cell\" ><div id=\"panel-524-0-0-0\" class=\"so-panel widget widget_mit-pf-wysiwyg widget_mit_pf_wysiwyg panel-first-child panel-last-child\" data-index=\"0\" ><div class=\"textwidget\"><div class=\"page threecol\"><div class=\"wrapper1\"><div class=\"col2 contentcol\"><div class=\"content\"><h2>Luxury Goods and the Equity Premium<\/h2><center><img decoding=\"async\" src=\"http:\/\/japarker.scripts.mit.edu\/docs\/keygraph.jpg\" \/><\/center><p>Luxury Goods and the Equity Premium, with Y. Ait-Sahalia and M. Yogo\u00a0<br \/><em>Journal of Finance<\/em>, Vol 59 No 6, (December 2004) 2959-3004.\u00a0<br \/>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.\u00a0<\/p><p><a href=\"http:\/\/mitsloan.mit.edu\/shared\/ods\/documents\/?DocumentID=4180\" target=\"_blank\" rel=\"noopener noreferrer\">The published version of the paper<\/a><\/p><p><a href=\"http:\/\/papers.nber.org\/papers\/w8417.pdf\" target=\"_blank\" rel=\"noopener noreferrer\">NBER WP8417, August 2001<\/a><\/p><p><a href=\"https:\/\/www.dropbox.com\/s\/9mtf4uaosdrxxnu\/Luxury_Retail_Sales.zip?dl=1\" target=\"_blank\" rel=\"noopener noreferrer\">Luxury retail sales data for the paper (excluding cross-sectional results)<\/a><span style=\"font-size: xx-small;\"><br \/><\/span><\/p><\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>Luxury Goods and the Equity PremiumLuxury Goods and the Equity Premium, with Y. Ait-Sahalia and M. Yogo\u00a0Journal of Finance, Vol 59 No 6, (December 2004) 2959-3004.\u00a0This 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 [&hellip;]<\/p>\n","protected":false},"author":38,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"template-two-column.php","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"class_list":["post-524","page","type-page","status-publish","hentry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.0 (Yoast SEO v25.8) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>MIT Sloan Faculty: Jonathan A. 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