John C. Heaton studies asset pricing, portfolio allocation, and time-series economics. He first became drawn to this area because he was "intrigued by the idea of understanding economic phenomena both to guide policy and to help people make better decisions." His research in these areas has earned him numerous fellowships, including an Alfred P. Sloan Research Fellowship from 1993 to 1995, a National Science Foundation Fellowship from 1993 to 1998, and a Provost Fund Fellowship from Massachusetts Institute of Technology (MIT) from 1989 to 1992.
Prior to joining the Chicago Booth faculty in 2000, Heaton was the Nathan S. and Mary P. Sharp Distinguished Professor of Finance at Northwestern University's Kellogg School of Management. He also has held positions at MIT's Sloan School of Management and at the Hoover Institution. Heaton is a research associate of the National Bureau of Economic Research. The practical problems investors and institutions face are a key component of his teaching.
Originally from Canada, Heaton earned a bachelor's degree in commerce at the University of Windsor in 1982, a master's degree in economics from the University of Western Ontario in 1984, and a PhD in economics from the University of Chicago in 1989. He joined the Chicago Booth faculty in 2000. Outside of academia, Heaton enjoys music, skiing, and sailing.
With Deborah Lucas, "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," Journal of Political Economy (June 1996).
With Deborah Lucas, "Market Frictions, Savings Behavior and Portfolio Choice," Macroeconomic Dynamics (1997).
With Deborah Lucas, "Portfolio Choice and Asset Prices; The Importance of Entrepreneurial Risk," Journal of Finance (2000).
With L. P. Hansen and N. Li, "Consumption Strikes Back? Measuring Long-Run Risk," Journal of Political Economy (April 2008).
For a listing of research publications please visit John C. Heaton’s university library listing page
REVISION: Introduction to Review of Financial Studies Conference on Market Frictions and Behavioral Finance
Date Posted: Dec 16, 2009
A significant fraction of research by financial economists over the last few decades has attempted to understand various anomalous or puzzling empirical observations taken from financial markets. These range from the equity premium puzzle at the aggregate level, to the small firm effect, to moment in returns, and to post-event abnormal returns at the level of individual stock and portfolio returns. In each case these empirical puzzles are identified by finding portfolios with average returns
Econometric Evaluation of Asset Pricing Models
Date Posted: Mar 19, 2009
In this paper we provide econometric tools for the evaluation of intertemporal asset pricing models using specification-error and volatility bounds. We formulate analog estimators of these bounds, give conditions for consistency and derive the limiting distribution of these estimators. The analysis incorporates market frictions such as short-sale constraints and proportional transactions costs. Among several applications we show how to use the methods to assess specific asset pricing models and
Econometric Evaluation of Asset Pricing Models
Date Posted: Mar 14, 2008
In this paper we provide econometric tools for the evaluation of intertemporal asset pricing models using specification-error and volatility bounds. We formulate analog estimators of these bounds, give conditions for consistency and derive the limiting distribution of these estimators. The analysis incorportes market frictions such as short-sale constraints and proportional transactions costs. Among several applications we show how to use the methods to assess specific asset pricing models an
New: Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing
Date Posted: Aug 15, 2007
No abstract is available for this paper.
Consumption Strikes Back?: Measuring Long-Run Risk
Date Posted: Aug 09, 2005
We characterize and measure a long-run risk return tradeoff for the valuation of financial cash flows that are exposed to fluctuations in macroeconomic growth. This tradeoff features components of financial cash flows that are only realized far into the future but are still reflected in current asset values. We use the recursive utility model with empirical inputs from vector autoregressions to quantify this relationship; and we study the long-run risk differences in aggregate securities and in
Portfolio Choice in the Presence of Background Risk
Date Posted: Jan 22, 2001
In this paper, we focus on how the presence of background risks - from sources such as labour and entrepreneurial income - influences portfolio allocations. This interaction is explored in a theoretical model that is calibrated using cross-sectional data from a variety of sources. The model is shown to be consistent with some but not all aspects of cross-sectional observations of portfolio holdings. The paper also provides a survey of the extensive theoretical and empirical literature on portfol
Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing
Date Posted: Apr 12, 1998
We examine an economy with aggregate and idiosyncratic income risk in which agents cannot contract on future labor income. Agents trade financial securities to buffer idiosyncratic shocks, but the extent of trade is limited by borrowing constraints and transactions costs. The effect of frictions on the equity premium is decomposed into two components: a direct effect due to the equation of net-of-costs margins and an indirect effect due to increased consumption volatility. Simulations suggest th