Martin Lettau | Clausen Center

Martin Lettau

Kruttschnitt Family Chair in Financial Institutions

Finance Department, Haas School of Business

Martin Lettau is the Kruttschnitt Family Chair in Financial Institutions at the Haas School of Business, University of California, Berkeley. He is a Research Associate at the National Bureau of Economic Research (Cambridge, Massachusetts); and a Research Fellow at the Center for Economic Policy and Research (London, England). His empirical work lies at the intersection of asset pricing and macroeconomics, and includes investigations of stock market volatility, macroeconomic risk and the equity premium, currency returns and risk premia, stocks and crashes, and the nexus between consumption, wealth and expected returns.

Summary of recent papers:

Capital Share Risk and Shareholder Heterogeneity in U.S. Stock Pricing

Coauthors:Sydney Ludvigson (NYU), Sai Ma (NYU)

Date: May 2017

Citation: Working Paper 

Capital share risk exhibits significant explanatory power for several cross-sections of expected returns, while subsuming much or all of the explanatory power of predominant return-based factor models. For most portfolios, positive exposure to capital share risk earns a positive risk premium, commensurate with recent inequality-based asset pricing models. But, in a striking and puzzling exception to this finding, the risk price is strongly negative for momentum. We show that this finding is central for understanding one key feature of the data, namely the negative correlation between value and momentum strategies, both of which earn high average returns.

 

Monetary Policy and Asset Valuation

Coauthors: Francesco Bianchi (Duke), Sydney C. Ludvigson (NYU)

Date: June 2017

Citation: Working Paper

This paper presents evidence of infrequent shifts, or “breaks” in the mean of the consumption wealth variable that are strongly associated with low frequency fluctuations in the real value of the Federal Reserve’s primary policy rate, with low policy rates associated with high asset valuations, and vice versa. By contrast, there is no evidence that infrequent shifts to high asset valuations and low policy rates are associated with higher economic growth or lower economic uncertainty; indeed the opposite is true. Additional evidence shows that low interest rate/high asset valuation regimes coincide with significantly lower equity market risk premia.