Pflueger, CarolinSiriwardane, EmilSunderam, Aditya2017-03-232017-03-23Pflueger, Carolin E., Emil Nuwan Siriwardane, and Aditya Vikram Sunderam. "Precautionary Savings in Stocks and Bonds." Harvard Business School Working Paper, No. 17-040, November 2016.http://nrs.harvard.edu/urn-3:HUL.InstRepos:30907884We document a strong and robust relation between the one-year real rate and precautionary savings motives, as measured by the stock market. Our novel proxy for precautionary savings, based on the difference in valuations between low- and high-volatility stocks, explains 37% of variation in the real rate. In addition, the real rate forecasts returns on the low-minus-high volatility portfolio, though it appears unrelated with measures of the quantity of risk. Our results suggest that precautionary savings motives, and thus the real rate, are driven by time-varying attitudes towards risk. We rationalize these findings in a stylized model with segmented investor clienteles and habit formation.en-USResearch Paper or Report2017-03-23