The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Capital Share Risk in U.S. Asset Pricing
Published: 03/30/2019 | DOI: 10.1111/jofi.12772
MARTIN LETTAU, SYDNEY C. LUDVIGSON, SAI MA
A single macroeconomic factor based on growth in the capital share of aggregate income exhibits significant explanatory power for expected returns across a range of equity characteristic portfolios and nonequity asset classes, with risk price estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk premium, commensurate with recent asset pricing models in which redistributive shocks shift the share of income between the wealthy, who finance consumption primarily out of asset ownership, and workers, who finance consumption primarily out of wages and salaries.
Monetary Policy and Asset Valuation
Published: 01/19/2022 | DOI: 10.1111/jofi.13107
FRANCESCO BIANCHI, MARTIN LETTAU, SYDNEY C. LUDVIGSON
We document large, longer term, joint regime shifts in asset valuations and the real federal funds rate‐r*$r^{\ast }$ spread. To interpret these findings, we estimate a novel macrofinance model of monetary transmission and find that the documented regimes coincide with shifts in the parameters of a policy rule, with long‐term consequences for the real interest rate. Estimates imply that two‐thirds of the decline in the real interest rate since the early 1980s is attributable to regime changes in monetary policy. The model explains how infrequent changes in the stance of monetary policy can generate persistent changes in asset valuations and the equity premium.