Asset Pricing With Multiplicative Habit and Power-Expo Preferences
نویسندگان
چکیده
Multiplicative habit introduces an additional consumption risk as a determinant of equity premium, and allows time preference and habit strength, in addition to risk aversion, to affect “price of risk”. A model combining multiplicative habit and power-expo preferences cannot be rejected.
منابع مشابه
Higher moments portfolio Optimization with unequal weights based on Generalized Capital Asset pricing model with independent and identically asymmetric Power Distribution
The main criterion in investment decisions is to maximize the investors utility. Traditional capital asset pricing models cannot be used when asset returns do not follow a normal distribution. For this reason, we use capital asset pricing model with independent and identically asymmetric power distributed (CAPM-IIAPD) and capital asset pricing model with asymmetric independent and identically a...
متن کاملInvestigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran
In this paper, we try to develop and modify the basic model of the consumption-based capital asset pricing model by adding the growth in real money balances rate as a risk factor in the household's utility function as (M-CCAPM). For this purpose, two forms of utility function with constant relative risk aversion (CRRA) preferences and recursive preferences have been used such that M1 and M2 are...
متن کاملLife Cycle Consumption and Portfolio Choice with Additive Habit Formation Preferences and Uninsurable Labor Income Risk
Representative agent asset pricing models with habit formation preferences do not generate implications for the behavior of individual agents. To explore these implications , I consider a life cycle model of consumption, savings and portfolio allocation for a household with additive and endogenous habit formation preferences. To solve the model, I characterize analytically the boundary of admis...
متن کاملCan Habit Formation Be Reconciled with Business Cycle Facts?
Many asset pricing puzzles can be explained when habit formation is added to standard preferences. We show that utility functions with a habit then gives rise to a puzzle of consumption volatility in place of the asset pricing puzzles when agents can choose consumption and labor optimally in response to more fundamental shocks. We show that the consumption reaction to technology shocks is too s...
متن کاملAsset Pricing with Habit-Dependent Preferences: Behavioral Foundations and Empirical Tests
This paper extends asset pricing models based on habit-dependent preferences in two new directions. First, previously proposed preference specifications are shown to be special cases of a more general model based on behavioral micro-foundations, that is a gain-loss model with habit utility as the reference state. Second, habit is modeled as the rational expectation of future consumption, rather...
متن کامل