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Author : Thomas D. Tallarini
Publisher :
ISBN 13 :
Total Pages : 56 pages
Book Rating : 4.3/5 (121 download)
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 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Thomas D. Tallarini (Jr.)
Publisher :
ISBN 13 :
Total Pages : 30 pages
Book Rating : 4.:/5 (849 download)
Download or read book External Habit and the Cyclicality of Expected Stock Returns written by Thomas D. Tallarini (Jr.) and published by . This book was released on 2005 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Thomas D. Tallarini
Publisher :
ISBN 13 :
Total Pages : 31 pages
Book Rating : 4.:/5 (129 download)
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 2009 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate an equilibrium asset pricing model in which agents' preferences have an unobserved external habit using the efficient method of moments (EMM). Given the estimated structural parameters we examine the cyclical behavior of expected stock returns in the model. We find that the estimated structural parameters imply countercyclical expected stock returns as documented in existing empirical studies. The model, however, is still rejected at the one percent level. Detailed examination of the moment conditions in our estimation indicates that the model performs reasonably well in matching the mean of the stock returns, but it fails to capture the higher order moments such as variance, skewness and kurtosis.
Author : Julian Veil
Publisher : GRIN Verlag
ISBN 13 : 3346385280
Total Pages : 22 pages
Book Rating : 4.3/5 (463 download)
Download or read book External Habit Formation and Asset Prices written by Julian Veil and published by GRIN Verlag. This book was released on 2021-04-13 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Seminar paper from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, University of Frankfurt (Main) (Finanzen), language: English, abstract: This paper aims to explain the countercyclical behavior of the equity risk premium and the stock return volatility by introducing an external habit formation feature in the standard representative-agent consumption-based asset pricing model, in form of the so called “catching up with the Joneses” preferences. These preferences imply that the relative risk aversion of the agents in the economy is constant over time and varies across the agents, which generates an endogenous wealth process, that in turn creates a countercyclical behavior in the risk premium and the conditional stock return volatility. As the agents with lower risk aversion distribute a greater fraction of their wealth to risky assets, their wealth decreases relatively more in reaction to cyclical downturns, shifting the aggregate wealth towards more risk averse individuals. These more risk averse agents, however, demand a higher compensation for risk, leading to an increase of the aggregate equity risk premium in response to a fall in stock prices. One of the most studied topics in modern economics are the market mechanisms that lead to the determination of asset prices in an economy. The empirical research indicates that there is a link between the historically observed asset prices and macroeconomic developments. One of the most important observations are the countercyclical behavior of the equity risk premium and the stock return volatility, implying that the excess return of common stocks over the risk-free rate during business cycle troughs is significantly higher than during expansions.
Author : Victoria Atanasov
Publisher :
ISBN 13 :
Total Pages : 86 pages
Book Rating : 4.:/5 (13 download)
Download or read book Consumption Fluctuations and Expected Returns written by Victoria Atanasov and published by . This book was released on 2019 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces a novel consumption-based variable, cyclical consumption, and examines its predictive properties for stock returns. Future expected stock returns are high (low) when aggregate consumption falls (rises) relative to its trend and marginal utility from current consumption is high (low). We show that the empirical evidence ties consumption decisions of agents to time-variation in returns in a manner consistent with asset pricing models based on external habit formation. The predictive power of cyclical consumption is not confined to bad times and subsumes the predictability of many popular forecasting variables.
Author : John Y. Campbell
Publisher :
ISBN 13 :
Total Pages : 76 pages
Book Rating : 4.:/5 (318 download)
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.
Author : Federal Reserve Federal Reserve Board
Publisher : CreateSpace
ISBN 13 : 9781511918596
Total Pages : 42 pages
Book Rating : 4.9/5 (185 download)
Download or read book Habit, Production, and the Cross-Section of Stock Returns written by Federal Reserve Federal Reserve Board and published by CreateSpace. This book was released on 2015-04-27 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Solutions to the equity premium puzzle should inform us about the cross-section of stock returns. An external habit model with heterogeneous firms reproduces numerous stylized facts about both the equity premium and the value premium. The equity premium is large, time-varying, and linked with consumption volatility. The cross-section of expected returns is log-linear in B/M, and the slope matches the data. The explanation for the value pre-mium lies in the interaction between the cross-section of cash flows and the time-varying risk premium. Value firms are temporarily low produc-tivity firms, which will eventually experience high cash flows. The present value of these temporally distant cash flows is sensitive to risk premium movements. The value premium is the reward for bearing this sensitivity. Empirical evidence verifies that value firms have higher cash-flow growth. The data also show that value stock returns are more sensitive to risk premium movements, as measured by consumption volatility shocks.
Author : Lior Menzly
Publisher :
ISBN 13 :
Total Pages : 74 pages
Book Rating : 4.:/5 (129 download)
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.
Author : Andrew Y. Chen
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (931 download)
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:
Author : John H. Cochrane
Publisher : Now Publishers Inc
ISBN 13 : 1933019158
Total Pages : 117 pages
Book Rating : 4.9/5 (33 download)
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.
Author : Emilio Barucci
Publisher : Springer
ISBN 13 : 1447173228
Total Pages : 843 pages
Book Rating : 4.4/5 (471 download)
Download or read book Financial Markets Theory written by Emilio Barucci and published by Springer. This book was released on 2017-06-08 with total page 843 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises. Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure. This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained. Advance praise for the second edition: "Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University "This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech "The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."Michel Crouhy, Head of Research and Development, NATIXIS
Author : Tim Bollerslev
Publisher :
ISBN 13 :
Total Pages : 58 pages
Book Rating : 4.E/5 ( download)
Download or read book Expected Stock Returns and Variance Risk Premia written by Tim Bollerslev and published by . This book was released on 2007 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Jeremy Nalewaik
Publisher :
ISBN 13 :
Total Pages : 70 pages
Book Rating : 4.E/5 ( download)
Download or read book Incorporating Vintage Differences and Forecasts Into Markov Switching Models written by Jeremy Nalewaik and published by . This book was released on 2007 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Karen E. Dynan
Publisher :
ISBN 13 :
Total Pages : 86 pages
Book Rating : 4.E/5 ( download)
Download or read book The Evolution of Household Income Volatility written by Karen E. Dynan and published by . This book was released on 2007 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Anne Elizabeth Hall
Publisher :
ISBN 13 :
Total Pages : 66 pages
Book Rating : 4.E/5 ( download)
Download or read book The Value of Medicare Managed Care Plans and Their Prescription Drug Benefits written by Anne Elizabeth Hall and published by . This book was released on 2007 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Geng Li
Publisher :
ISBN 13 :
Total Pages : 78 pages
Book Rating : 4.E/5 ( download)
Download or read book Learning by Investing written by Geng Li and published by . This book was released on 2007 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author : Pär Österholm
Publisher :
ISBN 13 :
Total Pages : 62 pages
Book Rating : 4.E/5 ( download)
Download or read book Incorporating Judgement in Fan Charts written by Pär Österholm and published by . This book was released on 2006 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Within a decision-making group, such as the monetary-policy committee of a central bank, group members often hold differing views about the future of key economic variables. Such differences of opinion can be thought of as reflecting differing sets of judgement. This paper suggests modelling each agent's judgement as one scenario in a macroeconomic model. Each judgement set has a specific dynamic impact on the system, and accordingly, a particular predictive density - or fan chart - associated with it. A weighted linear combination of the predictive densities yields a final predictive density that correctly reflects the uncertainty perceived by the agents generating the forecast. In a model-based environment, this framework allows judgement to be incorporated into fan charts in a formalised manner.
