Habit-based Asset Pricing with Limited Participation Consumption

Christian Bach () and Stig Vinther Møller ()
Additional contact information
Christian Bach: School of Economics and Management and CREATES, Postal: Bartholins Allé 10, 8000 Aarhus C, Denmark
Stig Vinther Møller: Finance Research Group, Aarhus School of Business and CREATES, Postal: Fuglesangs Allé 4, 8210 Aarhus V, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We calibrate and estimate a consumption-based asset pricing model with habit formation using limited participation consumption data. Based on survey data of a representative sample of American households, we distinguish between assetholder and non-assetholder consumption, as well as the standard aggregate consumption series commonly used in the CCAPM literature. We show that assetholder consumption outperforms non-assetholder and aggregate consumption data in explaining bond returns, bond yields, and the volatility of bond yields. We further show that the high volatility of assetholder consumption enables the model to explain the equity premium puzzle and the risk-free rate puzzle simultaneously for a reasonable value of relative risk aversion.

Keywords: CCAPM; Limited participation consumption data; Habit formation; Real term structure; Risk premium; GMM estimation (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Pages: 35
Date: 2010-06-16
New Economics Papers: this item is included in nep-dge and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repec.econ.au.dk/repec/creates/rp/10/rp10_46.pdf (application/pdf)

Related works:
Journal Article: Habit-based asset pricing with limited participation consumption (2011)
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: https://EconPapers.repec.org/RePEc:aah:create:2010-46

Access Statistics for this paper

More papers in CREATES Research Papers from Department of Economics and Business Economics, Aarhus University
Bibliographic data for series maintained by ().