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We show that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and drive asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences. A single state variable drives the conditional cross-sectional moments of household consumption growth. The estimated model fits well the unconditional cross-sectional moments of household consumption growth and the moments of the risk-free rate, equity premium, price-dividend ratio, and aggregate dividend and consumption growth. The model-implied risk-free rate and price-dividend ratio are procyclical, while the market return has countercyclical mean and variance. Finally, household consumption risk explains the cross section of excess returns.

In model-free out-of-sample tests, we find that the optimal portfolio of a utility maximizing investor trading in the S&P500 Index, cash, and index options bought at ask and written at bid prices stochastically dominates the optimal portfolio without options and yields returns with higher mean and lower volatility in most months from 1990 to 2013. Unlike earlier claims of overpriced puts, our portfolios include mostly short calls and are particularly profitable when maturity is short and volatility is high. Similar results are obtained with the CAC and DAX indices. Neither priced factors nor a nonmonotonic stochastic discount factor explains the excess returns.

Young people would like to invest in equities, given the observed high equity premium. However, they are reluctant to reduce their current consumption in order to save by investing in stocks, because the bulk of their lifetime income comes from their wages in their middle age. They want to borrow against their future income, but the borrowing constraints prevent them from doing so. Human capital alone cannot be used as collateral for large loans in modern economies for reasons of moral hazard and adverse selection. The model explains why many consumers do not participate in the stock market when they are young. Middle-aged consumers earn income that they partly consume and partly save by purchasing equities and bonds. The old earn no income and consume their savings. Therefore, the risk of stock and bond ownership is concentrated in the hands of middle-aged consumers who save. This concentration of risk generates the high equity premium and the demand for bonds, in addition to the demand for shares by the middle-aged. The model acknowledges and addresses at the same time the issue of the limited participation in the stock market and the demand for bonds. [web URL: http://www.journals.uchicago.edu/doi/full/10.1086/694621]

Widespread violations of stochastic dominance by 1-month S&P 500 index call options over 1986-2006 imply that a trader can improve expected utility by engaging in a zero-net-cost trade net of transaction costs and bid-ask spread. Although precrash option prices conform to the Black-Scholes-Merton model reasonably well, they are incorrectly priced if the distribution of the index return is estimated from time-series data. Substantial violations by postcrash OTM calls contradict the notion that the problem lies primarily with the left-hand tail of the index return distribution and that the smile is too steep. The decrease in violations over the postcrash period of 1988-1995 is followed by a substantial increase over 1997-2006, which may be due to the lower quality of the data but, in any case, does not provide evidence that the options market is becoming more rational over time.

Recent years have seen a rapid rise of artificial neural networks being employed in a number of cognitive tasks. The ever‐increasing computing requirements of these structures have contributed to a desire for novel technologies and paradigms, including memristor‐based hardware accelerators. Solutions based on memristive crossbars and analog data processing promise to improve the overall energy efficiency. However, memristor nonidealities can lead to the degradation of neural network accuracy, while the attempts to mitigate these negative effects often introduce design trade‐offs, such as those between power and reliability. In this work, authors design nonideality‐aware training of memristor‐based neural networks capable of dealing with the most common device nonidealities. The feasibility of using high‐resistance devices that exhibit high I‐V nonlinearity is demonstrated—by analyzing experimental data and employing nonideality‐aware training, it is estimated that the energy efficiency of memristive vector‐matrix multipliers is improved by almost three orders of magnitude (0.715 TOPs−1W−1 to 381 TOPs−1W−1) while maintaining similar accuracy. It is shown that associating the parameters of neural networks with individual memristors allows to bias these devices toward less conductive states through regularization of the corresponding optimization problem, while modifying the validation procedure leads to more reliable estimates of performance. The authors demonstrate the universality and robustness of this approach when dealing with a wide range of nonidealities. Nonideality‐aware training makes memristive neural networks feasible. Adapting to nonidealities during training enables to use more power‐efficient devices that would otherwise be difficult to utilize due to their nonlinear and stochastic behavior. The new method is robust and can be successfully deployed even when the exact nature of nonidealities is not known in advance.

American options on the S&P 500 index futures that violate the stochastic dominance bounds of Constantinides and Perrakis (2009) from 1983 to 2006 are identified as potentially profitable trades. Call bid prices more frequently violate their upper bound than put bid prices do, while violations of the lower bounds by ask prices are infrequent. In out-of-sample tests of stochastic dominance, the writing of options that violate the upper bound increases the expected utility of any risk-averse investor holding the market and cash, net of transaction costs and bid-ask spreads. The results are economically significant and robust.

Home Monitoring of Foot Skin Temperatures to Prevent Ulceration Lawrence A. Lavery , DPM, MPH 1 , Kevin R. Higgins , DPM 2 , Dan R. Lanctot , BS 2 , George P. Constantinides , MS 2 , Ruben G. Zamorano , MSW, MPH 2 , David G. Armstrong , DPM 3 , Kyriacos A. Athanasiou , PHD, PE 4 and C. Mauli Agrawal , PHD, PE 1 5 1 College of Medicine, Texas A&M Health Science Center, Scott and White Hospital, Temple, Texas 2 Xilas Medical, San Antonio, Texas 3 Dr. William M. Scholl College of Podiatric Medicine, Rosalind Franklin University of Medicine, Chicago, Illinois 4 Department of Bioengineering, Rice University, Houston, Texas 5 Department of Biomedical Engineering, The University of Texas, San Antonio, Texas Address correspondence and reprint requests to Lawrence A. Lavery, 703 Highland Spring Ln., Georgetown, TX 78628. E-mail: llavery{at}swmail.sw.org Abstract OBJECTIVE —To evaluate the effectiveness of at-home infrared temperature monitoring as a preventative tool in individuals at high risk for diabetes-related lower-extremity ulceration and amputation. RESEARCH DESIGN AND METHODS —Eighty-five patients who fit diabetic foot risk category 2 or 3 (neuropathy and foot deformity or previous history of ulceration or partial foot amputation) were randomized into a standard therapy group ( n = 41) or an enhanced therapy group ( n = 44). Standard therapy consisted of therapeutic footwear, diabetic foot education, and regular foot evaluation by a podiatrist. Enhanced therapy included the addition of a handheld infrared skin thermometer to measure temperatures on the sole of the foot in the morning and evening. Elevated temperatures (>4°F compared with the opposite foot) were considered to be “at risk” of ulceration due to inflammation at the site of measurement. When foot temperatures were elevated, subjects were instructed to reduce their activity and contact the study nurse. Study subjects were followed for 6 months. RESULTS —The enhanced therapy group had significantly fewer diabetic foot complications (enhanced therapy group 2% vs. standard therapy group 20%, P = 0.01, odds ratio 10.3, 95% CI 1.2–85.3). There were seven ulcers and two Charcot fractures among standard therapy patients and one ulcer in the enhanced therapy group. CONCLUSIONS —These results suggest that at-home patient self-monitoring with daily foot temperatures may be an effective adjunctive tool to prevent foot complications in individuals at high risk for lower-extremity ulceration and amputation. VPT, vibratory perception threshold Footnotes L.A.L., D.G.A., and K.A.A. are paid consultants for, serve on an advisory board for, and hold stock in Xilas Medical. A table elsewhere in this issue shows conventional and Système International (SI) units and conversion factors for many substances. Accepted August 6, 2004. Received May 20, 2004. DIABETES CARE