Social status concerns influence investors' decisions by driving a wedge in attitudes toward aggregate and idiosyncratic risks. I model such concerns by emphasizing the desire to “get ahead of the Joneses,” which implies that aversion to idiosyncratic risk is lower than aversion to aggregate risk. The model predicts that investors hold concentrated portfolios in equilibrium, which helps rationalize the small premium for undiversified entrepreneurial risk. In the model, status concerns are more important for wealthier households. Consequently, these households own a disproportionate share of risky assets, particularly private equity, and experience greater volatility of consumption, consistent with empirical evidence.

We describe a novel currency investment strategy, the ‘dollar carry trade,’ which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies. Using a no-arbitrage model of exchange rates we show that these excess returns compensate U.S. investors for taking on aggregate risk by shorting the dollar in bad times, when the U.S. price of risk is high. The countercyclical variation in risk premia leads to strong return predictability: the average forward discount and U.S. industrial production growth rates forecast up to 25% of the dollar return variation at the one-year horizon. The estimated model implies that the variation in the exposure of U.S. investors to worldwide risk is the key driver of predictability.

Mortgage refinancing activity associated with extraction of home equity contains a strongly countercyclical component consistent with household demand for liquidity. We estimate a structural model of liquidity management featuring countercyclical idiosyncratic labor income uncertainty, long‐ and short‐term mortgages, and realistic borrowing constraints. We empirically evaluate its predictions for households' choices of leverage, liquid assets, and mortgage refinancing using microlevel data. Taking the observed historical paths of house prices, aggregate income, and interest rates as given, the model accounts for many salient features in the evolution of balance sheets and consumption in the cross‐section of households over 2001 to 2012.

Do real assets protect against inflation? Stocks’ core inflation betas are negative, while their energy betas are positive. Currencies, commodities, and real estate mostly hedge against energy inflation, but not core inflation. These hedging properties are reflected in the prices of inflation risks: only core inflation carries a negative risk premium, and its magnitude is consistent within and across asset classes, uniquely among macroeconomic risk factors. Energy inflation has become more procyclical and volatile since the 1990s, which helps explain the time-varying correlation between stock and bond returns. A two-sector New Keynesian asset pricing model accounts for these facts quantitatively.