Economics at your fingertips  

Habit Formation Heterogeneity: Implications for Aggregate Asset Pricing

Eduard Dubin, Olesya V. Grishchenko and Vasily Kartashov

Finance, 2017, vol. 38, issue 1, 45-83

Abstract: We explicitly solve for aggregate asset prices in a discrete-time general- equilibrium endowment economy with two agents who differ with respect to their preferences for risk aversion and sensitivity to additive habit, either internal or external. We generalize an algorithm of Dumas and Lyasoff (2012) for the case of utility functions with time nonseparability that is induced by habit preferences. In the internal habit case, we find that the equilibrium equity premium, equity return volatility, Sharpe ratio, and risk-free rate and its volatility are more consistent with historically observed aggregate prices relative to the external habit case (?catching up with the Joneses?).

Keywords: asset pricing; consumption-based asset pricing models; external habit; internal habit; heterogeneity; time nonseparability; general equilibrium; computing equilibria; recursive solution (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

More articles in Finance from Presses universitaires de Grenoble
Bibliographic data for series maintained by Jean-Baptiste de Vathaire ().

Page updated 2022-01-02
Handle: RePEc:cai:finpug:fina_381_0045