Household Finance

Campbell, John C.

doi:10.3386/w12149

Cited by 298 publications

(425 citation statements)

References 85 publications

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“…It is very possible that many borrowers fail to refinance even though it is optimal for them to do so, and previous work (for example, Campbell 2006) has found that this mistake seems more prevalent among borrowers with characteristics that correlate with low FICO scores. Indeed, such borrowers are sometimes called "woodheads" in the mortgage industry (Deng and Quigley 2006), precisely because they are slower to refinance.…”

Section: Open Questionsmentioning

confidence: 99%

$1.25 Trillion is Still Real Money: Some Facts About the Effects of the Federal Reserve’s Mortgage Market Investments

Fuster

Willen

2010

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We use an event-study approach and measure the movements in both prices and quantities around the initial announcement of the LSAP and subsequent changes to the program. We use a new dataset to document the changes in the menu of rates and points offered to borrowers and show that there was wide dispersion in the rate changes generated by the announcement of the LSAP program, with some borrowers seeing immediate rate reductions of up to 40 basis points and other borrowers confronting rate increases. We show that the LSAP program led to a substantial boost in market activity, with discontinuous increases in searches, applications and originations for refinance mortgages, but not purchase mortgages. Finally, we show that more creditworthy borrowers were significantly more likely to benefit from the improved credit availability. Terms of use: Documents in EconStor may

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Section: Open Questionsmentioning

confidence: 99%

$1.25 Trillion is Still Real Money: Some Facts About the Effects of the Federal Reserve’s Mortgage Market Investments

Fuster

Willen

2010

SSRN Journal

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“…All statistics are as of December 2010. that offered by a non-interest bonus contract during the saving period, which comes at a cost of an approximately 1.3% higher credit interest rate. Although choosing the right contract is a complicated problem from a household perspective (Cocco, 2005;Campbell, 2006), we note that the mean contract volume is below 20,000 €, as shown in the empirical analysis. Consequently, customers must use other significant sources of funding to buy or refurbish real estate, and evaluating the importance of the credit option from a customer's perspective may not be critical.…”

Section: Introductionmentioning

confidence: 81%

“…Finally, the household finance literature considers the people's views and questions how they invest their capital (Campbell, 2006;Calvet et al, 2007;Bergstresser and Poterba, 2004). In contrast, our perspective takes the reverse approach; we take the bank's perspective and analyze how a bank can influence the behavior of its customers, regardless of what other investments they undertake.…”

Section: Related Literature and Backgroundmentioning

confidence: 99%

“…10 Recall from the introduction that the cost of choosing a 'bonus contract' is attributable to the fact that the customer faces higher interest rates for the credit option. Therefore, choosing the right contract is a complex problem from a household perspective, as shown by Cocco (2005) and Campbell (2006). Given the choice option, we address self-selection issues via panel estimators (i.e., customer fixed effects models and various matching procedures) in section 6.…”

Section: Theoretical Considerationsmentioning

confidence: 99%

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How Can Banks Effectively Stabilize Their Retail Customers’ Saving Behavior? The Impact of Contractual Rewards on Saving Persistence and Cash Flow Volatility

2012

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“…For households, portfolio decisions should be seen in a life-cycle perspective incorporating human capital and real estate, the dominant assets for many households (Campbell 2006). The ability to predict house prices and labor income is potentially as important for households as stock market predictability.…”

Section: Introductionmentioning

confidence: 99%

Predictors and Portfolios Over the Life Cycle

2016

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We show that the net corporate payout yield predicts both the stock market index and house prices and that the log home rent-price ratio predicts both house prices and labor income growth. We incorporate the predictability in a rich life-cycle model of household decisions involving consumption of both perishable goods and housing services, stochastic and unspanned labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. We find that households can significantly improve their welfare by optimally conditioning decisions on the predictors. For a modestly risk-averse agent with a 35-year working period and a 15-year retirement period, the present value of the higher average life-time consumption amounts to roughly $179,000 (assuming both an initial wealth and an initial annual income of $20,000), and the certainty equivalent gain is around 5.5% of total wealth (financial wealth plus human capital). Furthermore, every cohort of agents in our model would have benefited from applying predictor-conditional strategies along the realized time series over our 1960-2010 data period.Keywords: Return predictability, human capital, housing, investments, welfare JEL subject codes: G11, D91, D14 Predictors and Portfolios over the Life CycleAbstract: We show that the net corporate payout yield predicts both the stock market index and house prices and that the log home rent-price ratio predicts both house prices and labor income growth. We incorporate the predictability in a rich life-cycle model of household decisions involving consumption of both perishable goods and housing services, stochastic and unspanned labor income, stochastic house prices, home renting and owning, stock investments, and portfolio constraints. We find that households can significantly improve their welfare by optimally conditioning decisions on the predictors. For a modestly risk-averse agent with a 35-year working period and a 15-year retirement period, the present value of the higher average life-time consumption amounts to roughly $179,000 (assuming both an initial wealth and an initial annual income of $20,000), and the certainty equivalent gain is around 5.5% of total wealth (financial wealth plus human capital). Furthermore, every cohort of agents in our model would have benefited from applying predictor-conditional strategies along the realized time series over our 1960-2010 data period.

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Household Finance

Cited by 298 publications

References 85 publications

$1.25 Trillion is Still Real Money: Some Facts About the Effects of the Federal Reserve’s Mortgage Market Investments

$1.25 Trillion is Still Real Money: Some Facts About the Effects of the Federal Reserve’s Mortgage Market Investments

How Can Banks Effectively Stabilize Their Retail Customers’ Saving Behavior? The Impact of Contractual Rewards on Saving Persistence and Cash Flow Volatility

Predictors and Portfolios Over the Life Cycle

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