Download or read book A Consumption Based Model of Asset Prices The Case of Partially Observable Aggregate Consumption written by Hossein B. Kazemi and published by . This book was released on 1986 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Aggregate Consumption and Asset Pricing written by Joanna Wayland Woos and published by . This book was released on 1992 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Evaluating Asset Pricing Models with Limited Commitment Using Household Consumption Data written by Dirk Krueger and published by . This book was released on 2007 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of limited enforcement of intertemporal contracts. Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption growth rate and the growth rate of consumption of the set of households that do not face binding enforcement constraints. These unconstrained households have lower consumption growth rates than all other households in the economy. We use household data on consumption growth from the U.S. Consumer Expenditure Survey to identify unconstrained households, to estimate the pricing kernel implied by these models and evaluate their performance in pricing aggregate risk. We find that for high values of the relative risk aversion coefficient, the limited enforcement pricing kernel generates a market price of risk that is substantially closer to the data than the one obtained using the standard complete markets asset pricing kernel.

Download or read book Consumption Based Asset Pricing Part 1 written by Douglas T. Breeden and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article, Part 1 of 2, reviews the classical origins, development, and tests of consumption-based asset pricing theory, focusing mainly on the first two decades from 1976 to 1998. Starting with the original consumption capital asset pricing model (CCAPM) derivations, we review both theory and subsequent tests and provide some new applications. The consumption aggregation theorem and CCAPM are derived, and optimal consumption and portfolio strategies are discussed. The term structure of interest rates is derived from the term structures for expected growth, volatility, and inflation. Time aggregation biases in consumption betas as well as the usefulness of the “consumption-mimicking portfolio” are also derived. In addition to various empirical tests, models and tests of limited participation in asset markets as well as models of incomplete markets are presented. When certain measurement issues are taken into account, the CCAPM performs better than the original CAPM and nearly as well as the Fama-French three-factor model.

Download or read book a multiperiod asset pricing model with unobservable market portfolio written by and published by . This book was released on 1986 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Equilibrium Modelling of Asset Prices written by Marlynne Beth Fisher Ingram and published by . This book was released on 1986 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Consumption Based Asset Pricing Part 2 written by Douglas T. Breeden and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Following Part 1 of this article, which reviews late-1970s to 1990s classic derivations and tests of the consumption capital asset pricing model, here in Part 2 we review more recent developments, some of which are based on utility functions with non-time-separable preferences. Important second-generation consumption-based asset pricing advances are also reviewed, including models with habit formation and long-run risk. These models give large cyclical changes in relative risk aversion and risk premiums as well as lagged impacts of aggregate consumption changes on risk premiums. We review asset pricing with rare disasters and models focused on consumer spending on durables and real estate, as well as the fraction of spending financed by labor income. The second-generation models discussed have more free parameters and fit the empirical data better than did the first-generation consumption-based asset pricing models.

Download or read book Regime Learning and Asset Prices in a Long Run Model written by Binbin Deng and published by . This book was released on 2017 with total page 31 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper tries to draw on the relative merits of both the jump risk models and the long-run risk models with a linkage established by Bayesian learning, in an attempt to improve both asset pricing approaches in producing a better mechanism for understanding asset prices regularities.Rather than treating event risk as direct jumps in the level of aggregate income, we model it as changes in the underlying state of the world, the economic regimes, which affect aggregate consumption and dividend flows through their growth and volatility's dependence on the state.Realistically, information about the state transition is imperfect in this representative agent endowment economy and agents with recursive utility perform Bayesian learning to form and update beliefs about the conditional state arrival in order to make optimal long-run consumption investment decisions. This new learning component to the consumption-based paradigm will generate novel pricing implications through inducing extra covariance to be priced. Specifically, besides the aggregate uncertainty stemming from jump risk exposure, the presence of imperfect learning behavior also generates individual ambiguity. We shall see that such dual channels can help better explain some asset pricing regularities observed, e.g. the dual puzzles, predictability issues, time-varying conditional moments, etc., and shed some new light on the long-run cash flow news approach in asset pricing.

Download or read book An Overlapping Generations Model of Asset Pricing written by Gregory William Huffman and published by Ann Arbor, Mich. : University Microfilms International. This book was released on 1983 with total page 150 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effect of Costly Consumption Adjustment on Asset Price Volatility written by David A. Marshall and published by . This book was released on 1994 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Consumption Based Asset Pricing written by Stephan Siegel and published by . This book was released on 2012 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we investigate the implications of non-separable preferences over durable and nondurable consumption for asset pricing tests when adjusting durable consumption is costly. In an economy without adjustment costs, in which a frictionless rental market exists for the durable good, the standard Euler equation with respect to nondurable consumption will hold for each individual agent as well as for aggregate data. If the adjustment of the durable good is costly, however, aggregation generally fails. We use aggregate data to find substantial deviations from the frictionless model, consistent with the presence of non-convex adjustment costs for the durable good. We also show how empirical asset pricing tests that use aggregate data can be affected by these deviations. We then propose and implement asset pricing tests that are robust to the presence of adjustment costs by relying on microeconomic data. Using household-level observations of nondurable food and durable housing consumption, our estimation results suggest that preferences are indeed non-separable in the two consumption goods and that reasonable structural parameters characterize agents' intertemporal utility optimizations.

Download or read book Advances in Consumption Based Asset Pricing Empirical Tests written by and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

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.

Download or read book Consumption based Asset Pricing with Higher Cumulants written by Ian Martin (Assistant Professor of Finance (2008-present)) and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth. Information about the higher moments--equivalently, cumulants--of consumption growth is encoded in the cumulant-generating function. I apply the framework to economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences that are robust to the details of the underlying consumption process -- National Bureau of Economic Research web site.

Download or read book Consumption Based Asset Pricing written by Baptiste Truchot and published by . This book was released on 2016 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The equilibrium approach to asset pricing is born with the Capital Asset Pricing Model (CAPM) of Sharpe ([Sha64]) and Lintner ([Lin65]), based on the works of Markowitz on diversification and portfolio theory ([Mar52], [Mar56]). Since then, most theoretical and empirical developments take place in a well established framework, the consumption-based paradigm. Though an integral part of modern macroeconomics, it has difficulties explaining stylized facts of asset pricing, at least in its canonical form. The most famous example is its inability to explain the high observed equity premia, or the “equity premium puzzle” as coined by Rajnish Mehra and Edward C. Prescott ([MP85]). We survey the empirical inconsistencies of the standard paradigm and the numerous extensions aiming at adressing those empirical shortcomings. The emphasis is on the heterogeneous consumption-based models. They constitute indeed a very promising line of research, both due to the relevance of the results and the theoretical appeal of the underlying assumptions. Moreover, the seminal reviews of the field devote little attention to these developments because, to a large extent, they appeared very recently. This report does not claim to be a comprehensive survey of this literature but an overview of the different approaches, their assumptions and their contributions, in the extended consumption-based paradigm.

Download or read book Explaining the Poor Performance of Consumption based Asset Pricing Models written by John Y. Campbell and published by . This book was released on 1999 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: The poor performance of consumption-based asset pricing models relative to traditional portfolio-based asset pricing models is one of the great disappointments of the empirical asset pricing literature. We show that the external habit-formation model economy of Campbell and Cochrane (1999) can explain this puzzle. Though artificial data from that economy conform to a consumption-based model by construction, the CAPM and its extensions are much better approximate models than is the standard power utility specification of the consumption-based model. Conditioning information is the central reason for this result. The model economy has one shock, so when returns are measured at sufficiently high frequency the consumption-based model and the CAPM are equivalent and perfect conditional asset pricing models. However, the model economy also produces time-varying expected returns, tracked by the dividend-price ratio. Portfolio-based models capture some of this variation in state variables, which a state-independent function of consumption cannot capture, and so portfolio-based models are better approximate unconditional asset pricing models

Download or read book Consumption based Asset Pricing with Higher Cumulants written by Ian Martin and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth. Information about the higher moments--equivalently, cumulants--of consumption growth is encoded in the cumulant-generating function. I apply the framework to economies with rare disasters, and argue that the importance of such disasters is a double-edged sword: parameters that govern the frequency and sizes of rare disasters are critically important for asset pricing, but extremely hard to calibrate. I show how to sidestep this issue by using observable asset prices to make inferences that are robust to the details of the underlying consumption process.