Comparing Consumption-based Asset Pricing Models: The Case of an Asian City

Yum K. Kwan, Charles Leung and Jinyue Dong

MPRA Paper from University Library of Munich, Germany

Abstract: Eight consumption-based asset pricing models are developed, estimated and compared their capacities in accounting for the asset markets in Hong Kong. Results based on conventional metrics or recently developed econometric techniques deliver similar results: introducing housing into the consumption-based models does not always improve the models’ performance; how it is introduced matters. Recursive utility model and its housing-augmented variant, which emphasize the importance of early resolution of uncertainty and long term risk, outperform alternative models in forecasting stock returns. Collateral constraint model outperforms in predicting housing return, suggesting the importance of imperfect capital market in the housing market.

Keywords: Consumption-based asset pricing model; Recursive utility; Habit formation; Consumption growth risk; Composition risk; Labor income risk; Long-run risk; Collateral constraint; Hansen-Jagannathan distance; Model confidence sets. (search for similar items in EconPapers)
JEL-codes: E20 G12 R30 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-mac, nep-sea, nep-upt and nep-ure
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Related works:
Journal Article: Comparing consumption-based asset pricing models: The case of an Asian city (2015)
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