Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203300
Authors: 
Kraft, Holger
Munk, Claus
Weiss, Farina
Year of Publication: 
2017
Series/Report no.: 
SAFE Working Paper 139
Abstract: 
In a calibrated consumption-portfolio model with stock, housing, and labor income predictability, we disentangle the welfare effects of skill and luck. Skilled investors are able to take advantage of all sources of predictability, whereas unskilled investors ignore predictability. Lucky investors enter the market at a favorable time. For an unskilled investor the certainty equivalent of wealth is 0.3-6.8% lower than for a skilled investor, depending on the market entry date. Across market entry dates, skilled but unlucky investors can lose up to 15.4% compared to unskilled but lucky investors. Simulation studies confirm the relative importance of luck and document that, if anything, housing predictability is more important than stock predictability.
Subjects: 
Return predictability
scenarios
welfare
performance
housing
JEL: 
G11
D91
D14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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