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Surplus Consumption Ratio And Expected Stock Returns
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Book Synopsis Surplus Consumption Ratio and Expected Stock Returns by : Imen Ghattassi
Download or read book Surplus Consumption Ratio and Expected Stock Returns written by Imen Ghattassi and published by . This book was released on 2013 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on Campbell and Cochrane [1999] Consumption-Based Asset Pricing Model (C)CAPM with habit formation, this paper provides empirical evidence in favor of the importance of habit persistence in asset pricing. Using U.S data, we show that the surplus consumption ratio is a strong predictor of excess returns at long-horizons and that it captures a component of expected returns, not explained by the consumption-wealth ratio. Moreover, this paper shows that the (C)CAPM with habit formation performs far better than the standard (C)CAPM in accounting for the cross-sectional variations in average excess returns on the 25 FA MA-FRENCH portfolios sorted by size and book-to-market value.
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 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 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 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 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 A Consumption-based Explanation of Expected Stock Returns by : Motohiro Yogo
Download or read book A Consumption-based Explanation of Expected Stock Returns written by Motohiro Yogo and published by . This book was released on 2005 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Stock Returns and Expected Business Conditions by : Sean D. Campbell
Download or read book Stock Returns and Expected Business Conditions written by Sean D. Campbell and published by . This book was released on 2005 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: "We explore the macro/finance interface in the context of equity markets. In particular, using half a century of Livingston expected business conditions data we characterize directly the impact of expected business conditions on expected excess stock returns. Expected business conditions consistently affect expected excess returns in a statistically and economically significant counter-cyclical fashion: depressed expected business conditions are associated with high expected excess returns. Moreover, inclusion of expected business conditions in otherwisestandard predictive return regressions substantially reduces the explanatory power of the conventional financial predictors, including the dividend yield, default premium, and term premium, while simultaneously increasing R-squared. Expected business conditions retain predictive power even after controlling for an important and recently introduced non-financial predictor, the generalized consumption/wealth ratio, which accords with the view that expected business conditions play a role in asset pricing different from and complementary to that of the consumption/wealth ratio. We argue that time-varying expected business conditions likely capture time-varying risk, while time-varying consumption/wealth may capture time-varying risk aversion"--National Bureau of Economic Research web site
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, Aggregate Wealth and Expected Stock Returns by : Martin Lettau
Download or read book Consumption, Aggregate Wealth and Expected Stock Returns written by Martin Lettau and published by . This book was released on 2008 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the role of detrended wealth in predicting stock returns. We call a transitory movement in wealth one that produces a deviation from its shared trend with consumption and labor income. Using U.S. quarterly stock market data, we find that these trend deviations in wealth are strong predictors of both real stock returns and excess returns over a Treasury bill rate. We also find that this variable is a better forecaster of future returns at short and intermediate horizons than is the dividend yield, the earnings yield, the dividend payout ratio, and several other popular forecasting variables. Why should wealth, detrended in this way, forecast asset returns? We show that a wide class of optimal models of consumer behavior imply that the log consumption-aggregate (human and nonhuman) wealth ratio forecasts the expected return on aggregate wealth, or the market portfolio. Although this ratio is not observable, we demonstrate that its important predictive components may be expressed in terms of observable variables, namely in terms of consumption, nonhuman wealth, and labor income. The framework implies that these variables are cointegrated, and that deviations from this shared trend summarize agents' expectations of future returns on the market portfolio.
Book Synopsis Does Consumption-wealth Ratio Signal Stock Returns? by : Xu Fang
Download or read book Does Consumption-wealth Ratio Signal Stock Returns? written by Xu Fang and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Wealth-consumption Ratio by : Hanno Lustig
Download or read book The Wealth-consumption Ratio written by Hanno Lustig and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: To measure the wealth-consumption ratio, we estimate an exponentially affine model of the stochastic discount factor on bond yields and stock returns. We use that discount factor to compute the no-arbitrage price of a claim to aggregate US consumption. Our estimates indicate that total wealth is much safer than stock market wealth. The consumption risk premium is only 2.2 percent, substantially below the equity risk premium of 6.9 percent. As a result, our estimate of the wealth-consumption ratio is much higher than the price-dividend ratio on stocks throughout the post-war period. The high wealth-consumption ratio implies that the average US household has a lot of wealth, most of it human wealth. A variance decomposition of the wealth-consumption ratio shows less return predictability overall, but most of the return predictability is for future interest rates, not excess returns. We conclude that the properties of the total wealth portfolio are more similar to those of a long-maturity bond portfolio than those of a stock portfolio. The differences that we find between the risk-return characteristics of equity and total wealth suggest that equity is a special asset class
Book Synopsis Expected Stock Returns and the Correlation Risk Premium by : Adrian Buss
Download or read book Expected Stock Returns and the Correlation Risk Premium written by Adrian Buss and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Expected Stock Returns, Real Business Activity and Consumption Smoothing by : Hany A. Shawky
Download or read book Expected Stock Returns, Real Business Activity and Consumption Smoothing written by Hany A. Shawky and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a general equilibrium asset-pricing model that incorporates both production technology and consumption-smoothing behavior. It shows that technology and productivity shocks, labor input and capital stock are important factors in explaining the behavior of expected asset returns. Empirical tests indicate that, while technology shocks and growth in capital stock are significant factors in explaining asset returns, it is the labor growth variable that appears to provide most of the explanatory power. Furthermore, our results indicate that investors are likely to have high levels of relative risk aversion as well as consumption-smoothing behavior.
Book Synopsis Stock Market Volatility and the Great Moderation by : Sean D. Campbell
Download or read book Stock Market Volatility and the Great Moderation written by Sean D. Campbell and published by . This book was released on 2005 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Predictability Implied by Consumption-Based Asset Pricing Models by : Jiun-Lin Chen
Download or read book The Predictability Implied by Consumption-Based Asset Pricing Models written by Jiun-Lin Chen and published by . This book was released on 2018 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: The consumption-based models have a lack of predictive power for explaining variability of stock returns. This paper examines two well-known models, Campbell and Cochrane (1999)'s habit model and Bansal and Yaron (2004)'s long-run risks model, to see whether they produce a significant power of return predictability. For the habit model, empirical tests reveal that the state variable, the surplus consumption ratio, explains counter-cyclical time-varying expected returns. The long-run risks model also proves to explain that main sources of volatility in price-dividend ratio are a persistent and predictable consumption growth rate and fluctuating economic uncertainty. The models are also tested by following the work of Kirby (1998) whether they can explain the observed return predictability. Both models fail to generate any significant predictive power. The habit model is relatively strong in volatility, which implies that variation in expected excess return is largely attributable to the time-varying risk aversion.
Book Synopsis Asset Pricing at the Millenium by : John Y. Campbell
Download or read book Asset Pricing at the Millenium written by John Y. Campbell and published by . This book was released on 2000 with total page 86 pages. Available in PDF, EPUB and Kindle. Book excerpt:
