Equilibrium Correlations of Asset Price and Return

Charles Leung

The Journal of Real Estate Finance and Economics, 2007, vol. 34, issue 2, 233-256

Abstract: Two empirical questions concerning the equity and housing have been studied extensively: (1) Are the price and return serially correlated, and (2) What is the optimal weight of housing in the portfolio? The answer to the second question crucially depends on the cross-correlation of assets. This paper complements the literature by building a simple dynamic general equilibrium with fully rational agents, and obtain closed form solutions for the implied auto- and cross-correlations. The length of time horizon, as well as the persistence of economic shock matter. Implications and future research directions are then discussed. Copyright Springer Science+Business Media, LLC 2007

Keywords: Rational expectation; Price and return; Serial and cross correlation; Market efficiency; Predictability; E30; G10; R20 (search for similar items in EconPapers)
Date: 2007
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Related works:
Working Paper: Equilibrium Correlation of Asset Price and Return (2005)
Working Paper: Equilibrium Correlation of Asset Price and Return (2005)
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DOI: 10.1007/s11146-007-9009-y

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