John C. Heaton
Joseph L. Gidwitz Professor of Finance
Joseph L. Gidwitz Professor of Finance
John C. Heaton studies asset pricing, portfolio allocation, and time-series econometrics. 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, and a National Science Foundation Fellowship from 1993 to 1998.
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 the university library listing page.
New: Consumption Strikes Back? Measuring Long-Run Risk
Date Posted:Thu, 16 Feb 2017 02:49:44 -0600
We characterize and measure a long-term risk-return trade-off for the valuation of cash flows exposed to fluctuations in macroeconomic growth. This trade-off features risk prices of cash flows that are realized far into the future but continue to be reflected in asset values. We apply this analysis to claims on aggregate cash flows and to cash flows from value and growth portfolios by imputing values to the long-run dynamic responses of cash flows to macroeconomic shocks. We explore the sensitivity of our results to features of the economic valuation model and of the model cash flow dynamics.
New: Intangible Risk?
Date Posted:Thu, 19 Dec 2013 00:45:40 -0600
In this paper we reviewed two findings pertinent for using asset market data to make inferences about the intangible capital stock. We presented evidence familiar from the empirical finance literature that returns are heterogeneous when firms are grouped according to their ratio of market equity to book equity. This evidence suggests that there are important differences in the riskiness of investment in measured capital vis-à-vis intangible capital. This has potentially important ramifications for how to build explicit economic models to use in constructing measurements of the intangible capital stock.
REVISION: Introduction to Review of Financial Studies Conference on Market Frictions and Behavioral Finance
Date Posted:Wed, 16 Dec 2009 06:46:26 -0600
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 ...
Econometric Evaluation of Asset Pricing Models
Date Posted:Thu, 19 Mar 2009 14:39:53 -0500
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 ...
Econometric Evaluation of Asset Pricing Models
Date Posted:Fri, 14 Mar 2008 11:57:53 -0500
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 ...
New: Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing
Date Posted:Wed, 15 Aug 2007 00:24:30 -0500
No abstract is available for this paper.
Consumption Strikes Back?: Measuring Long-Run Risk
Date Posted:Tue, 09 Aug 2005 14:45:43 -0500
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 ...
REVISION: Introduction to Review of Financial Studies Conference on Market Frictions and Behavioral Finance
Date Posted:Wed, 13 Apr 2005 19:59:46 -0500
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 ...
Portfolio Choice in the Presence of Background Risk
Date Posted:Mon, 22 Jan 2001 04:52:08 -0600
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 ...
Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing
Date Posted:Sun, 12 Apr 1998 09:03:54 -0500
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 ...
Chicago Booth’s John C. Heaton, Tobias J. Moskowitz, and Eric Budish, along with Spot Trading’s Stephen Brodsky, discuss high-frequency trading on this episode of the monthly video series, The Big Question.
{PubDate}How Booth faculty helped create new groundbreaking products.
{PubDate}Fundamental economic variables regain importance in explaining risk premiums in stock markets.
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