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Consumption Habit And International Stock Returns
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Book Synopsis Consumption Habit and International Stock Returns by : Yuming Li
Download or read book Consumption Habit and International Stock Returns written by Yuming Li and published by . This book was released on 2004 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the consumption-based asset pricing model with habit formation to study the predictability and cross section of returns from the international equity markets. We find that the predictability of returns from many developed countries' equity markets is explained in part by changing prices of risks associated with consumption relative to habit at the world as well as local levels. We also provide an exploratory investigation of the cross-sectional implications of the model under the complete world market integration hypothesis and find that the model performs mildly better than the traditional consumption-based model, the unconditional and conditional world CAPMs and a three-factor international asset pricing model.
Book Synopsis Correlation of International Stock Returns and the Benefits from Diversification by : Chue Timothy K.
Download or read book Correlation of International Stock Returns and the Benefits from Diversification written by Chue Timothy K. and published by . This book was released on 2000 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Consumption, Stock Returns, and the Gains from International Risk-sharing by : Karen K. Lewis
Download or read book Consumption, Stock Returns, and the Gains from International Risk-sharing written by Karen K. Lewis and published by . This book was released on 1996 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: Standard theoretical models predict that domestic residents should diversify their portfolios into foreign assets much more than observed in practice. Whether this lack of diversification is important depends upon the potential gains from risk-sharing. General equilibrium models and consumption data tend to find that the costs are small, typically less than «% of permanent consumption. On the other hand, stock returns imply gains that are several hundred times larger. In this paper, I examine the reasons for these differences. I find that the primary differences are due to either: (a) the much higher variability of stocks, and/or (b) the higher degree of risk aversion required to reconcile an international equity premium. On the other hand, the significant differences do not arise treating stock returns as exogenous.
Book Synopsis Habit Formation, Surplus Consumption and Return Predictability by : Tom Engsted
Download or read book Habit Formation, Surplus Consumption and Return Predictability written by Tom Engsted and published by . This book was released on 2011 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: On an international post World War II dataset, we use an iterated GMM procedure to estimate and test the Campbell and Cochrane (1999) habit formation model with a time-varying risk-free rate. In addition, we analyze the predictive power of the surplus consumption ratio for future stock and bond returns. We find that, although there are important cross-country differences and economically significant pricing errors, for the majority of countries in our sample the model gets empirical support in a variety of different dimensions, including reasonable estimates of risk-free rates. Further, for the majority of countries the surplus consumption ratio captures time-variation in expected returns. Together with the price-dividend ratio, the surplus consumption ratio contains significant information about future stock returns, also during the 1990s. In addition, in most countries the surplus consumption ratio is also a powerful predictor of future bond returns. Thus, the surplus consumption ratio captures time-varying expected returns in both stock and bond markets.
Book Synopsis Global Stock Markets by : Wolfgang Drobetz
Download or read book Global Stock Markets written by Wolfgang Drobetz and published by Springer Science & Business Media. This book was released on 2013-06-29 with total page 346 pages. Available in PDF, EPUB and Kindle. Book excerpt: Wolfgang Drobetz provides empirical evidence on the time variation of expected stock returns over the stages of the business cycle.
Book Synopsis External Habit and the Cyclicality of Expected Stock Returns by : Thomas D. Tallarini
Download or read book External Habit and the Cyclicality of Expected Stock Returns written by Thomas D. Tallarini and published by . This book was released on 2005 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis By Force of Habit by : John Y. Campbell
Download or read book By Force of Habit written by John Y. Campbell and published by . This book was released on 1995 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a consumption-based model that explains the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i.i.d. consumption growth driving process, and adds a slow-moving external habit to the standard power utility function. The latter feature produces cyclical variation in risk aversion, and hence in the prices of risky assets. Our model also predicts many of the difficulties that beset the standard power utility model, including Euler equation rejections, no correlation between mean consumption growth and interest rates, very high estimates of risk aversion, and pricing errors that are larger than those of the static CAPM. Our model captures much of the history of stock prices, given only consumption data. Since our model captures the equity premium, it implies that fluctuations have important welfare costs. Unlike many habit-persistence models, our model does not necessarily produce cyclical variation in the risk free interest rate, nor does it produce an extremely skewed distribution or negative realizations of the marginal rate of substitution.
Book Synopsis International Consumption Risk is Shared After All by : Karen K. Lewis
Download or read book International Consumption Risk is Shared After All written by Karen K. Lewis and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: International consumption risk sharing studies have largely ignored their models' counterfactual implications for asset returns although these returns incorporate direct market measures of risk. In this paper, we modify a canonical risk-sharing model to generate more plausible asset return behavior and then consider the effects on welfare gains. Matching the mean and variance of equity returns and the risk-free rate requires persistent consumption risk, leading to three main findings: (1) risk-sharing gains decrease as the ability to diversify persistent consumption risk decreases; (2) the international correlation of equity returns is high relative to the correlation of consumption and dividends, implying low diversification potential for persistent consumption risk; and (3) increasing persistent consumption risk reduces the gains. Taken together, our findings suggest that asset returns imply more international risk sharing than previously thought.
Book Synopsis Consumption Risk and International Asset Returns by : Robert Cumby
Download or read book Consumption Risk and International Asset Returns written by Robert Cumby and published by . This book was released on 1987 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines if real stock returns in four countries are consistent with consumption-based models of international asset pricing. The paper finds that ex-ante real stock returns exhibit statistically significant fluctuations over time and that these fluctuations cannot be explained by consumption-based models when the conditional covariances between real stock returns and the rate of change of consumption are assumed to be constant over time. These conditional covariances are then modeled and the paper finds that they too exhibit statistically significant fluctuations over time. However, even when conditional covariances are allowed to change over time, the paper finds that the consumption-based models do not fully explain real stock returns
Book Synopsis Habit Formation and the Cross Section of Stock Returns by : Lior Menzly
Download or read book Habit Formation and the Cross Section of Stock Returns written by Lior Menzly and published by . This book was released on 2011 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an external habit persistence model where the time series of the aggregate portfolio and the cross section of stock returns are simultaneously studied and tested. By applying a slightly modified version of the model of Campbell and Cochrane (1999), we obtain closed form solutions for individual securities prices and returns and a full characterizations of the dynamics of the risk-return characteristics of individual securities. We find that each stock return quot;betaquot; with respect to the total wealth portfolios is jointly determined by an aggregate variable that depends on the habit level, and an idiosyncratic asset characteristics that depends on the contribution of the security to total consumption relative to its long-run average contribution. This functional form imposes tight predictions on the cross sectional test, including sign and magnitude of the coefficients, and insures that the explanatory power of the beta comes from the predictable part of the realization of returns. An estimate of the model for a set of 20 industry portfolios is able to explain cross-sectional variation in the conditional expected returns. Moreover, the model generates price consumption ratios for individual industries that track well the empirical ones.
Book Synopsis Consumption Risk and International Asset Returns by : Robert E. Cumby
Download or read book Consumption Risk and International Asset Returns written by Robert E. Cumby and published by . This book was released on 2010 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper examines if real stock returns in four countries are consistent with consumption-based models of international asset pricing. The paper finds that ex-ante real stock returns exhibit statistically significant fluctuations over time and that these fluctuations cannot be explained by consumption-based models when the conditional covariances between real stock returns and the rate of change of consumption are assumed to be constant over time. These conditional covariances are then modeled and the paper finds that they too exhibit statistically significant fluctuations over time. However, even when conditional covariances are allowed to change over time, the paper finds that the consumption-based models do not fully explain real stock returns.
Book Synopsis The U.S. Consumption-wealth Ratio and Foreign Stock Markets by : Thomas Nitschka
Download or read book The U.S. Consumption-wealth Ratio and Foreign Stock Markets written by Thomas Nitschka and published by . This book was released on 2006 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Markets and the Real Economy by : John H. Cochrane
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Book Synopsis Consumption Risk and Expected Stock Returns by : Jonathan A. Parker
Download or read book Consumption Risk and Expected Stock Returns written by Jonathan A. Parker and published by . This book was released on 2003 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Habit, Production, and the Cross-section of Stock Returns by : Andrew Y. Chen
Download or read book Habit, Production, and the Cross-section of Stock Returns written by Andrew Y. Chen and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Consumption and the Stock Market by : John Y. Campbell
Download or read book Consumption and the Stock Market written by John Y. Campbell and published by . This book was released on 2008 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the behavior of stock prices in relation to consumption. The paper lists some important stylized facts that characterize US data, and relates them to recent developments in equilibrium asset pricing theory. Data from other countries are examined to see which features of the US experience apply more generally. The paper argues that to make sense of stock market behavior one needs a model in which investors' risk aversion is both high and varying, such as the external habit-formation model of Campbell and Cochrane (1995).
Book Synopsis International Asset Pricing Under Habit Formation and Idiosyncratic Consumption Risk by : Yuming Li
Download or read book International Asset Pricing Under Habit Formation and Idiosyncratic Consumption Risk written by Yuming Li and published by . This book was released on 2003 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a consumption-based asset pricing model to explain the equity premium and riskfree puzzles as well as the predictability of returns in the international equity markets. We find that because the model entails idiosyncratic consumption risk which is higher than the aggregate consumption risk, the model helps lower the investor risk aversion needed to explain the mean equity premiums. In addition, because the model also allows for habit formation that disentangles intertemporal substitution from investor risk aversion, the model can resolve the riskfree rate puzzle. Further, as the timevarying individual investor risk aversion and the re-distribution of wealth among heterogeneous investors are contributing factors to the time-varying equity premiums, the model explains larger portions of the long-horizon predictability for many countries' equity markets and the world market portfolio than the world representative-agent model. In contrast, the power utility model with or without idiosyncratic consumption risk fails to explain the level of the real riskfree rate or the predictability of returns.
