Equity Premiums In Small Open Economy

Mohamed Douch

MPRA Paper from University Library of Munich, Germany

Abstract: It is now well known that the RBC models have enjoyed successful results in explaining the dynamics of the business cycle variables but fail to replicate similar interesting stylized facts while studying the behavior of asset prices. One line of progress for solving this shortcoming has been to modify utility to account for habit persistence and to incorporate capital adjustment costs. This paper study a small open economy general equilibrium model along with asset pricing formula based on the lognormality of the disturbance distribution. Our results stipulate that extending models with habit forming preferenses and capital adjustment cost fails to account for a substantial equity premium in a small open economy environment.

Keywords: Asset pricing; Equity premium; habit formation; small open economy JEL classification: G15; G12; C63; F41 (search for similar items in EconPapers)
JEL-codes: C63 F41 G12 G15 (search for similar items in EconPapers)
Date: 2004-06
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Citations: View citations in EconPapers (1)

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Working Paper: Equity Premiums In a Small Open Economy (2004)
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