TESTING HABITS IN AN ASSET PRICING MODEL
Melisso Boschi (),
Stefano d'Addona () and
Aditya Goenka ()
No 509, Working Papers from CREI Università degli Studi Roma Tre
We develop a model of asset pricing assuming that investor's behavior is habit forming. The model predicts that the effect of consumption growth shocks on the risk premium depends on the business cycle phase of the economy. This empirical implication is tested with a Markovswitching VAR model on the US postwar economy. The results show that the response of the risk premium to shocks to consumption is not significantly different over the business cycle phases of the economy. We interpret this as evidence against the habit formation hypothesis of the investor's behavior.
Keywords: Habit formation; Equity premium; Business cycle; Markovswitching VAR models (search for similar items in EconPapers)
Date: 2009, Revised 2009
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://host.uniroma3.it/centri/crei/pubblicazioni/ ... 009/CREI_05_2009.pdf First version, 2009 (application/pdf)
Working Paper: Testing external habits in an asset pricing model (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rcr:wpaper:05_09
Access Statistics for this paper
More papers in Working Papers from CREI Università degli Studi Roma Tre Contact information at EDIRC.
Bibliographic data for series maintained by Francesca Vaino ().