Details

Autor(en) / Beteiligte

• Chen, Yu
• Cosimano, Thomas F.
• Himonas, Alex A.

Titel

Solving an asset pricing model with hybrid internal and external habits, and autocorrelated Gaussian shocks

Ist Teil von

• Annals of finance, 2008-07, Vol.4 (3), p.305-344

Ort / Verlag

Berlin/Heidelberg: Springer-Verlag

Erscheinungsjahr

2008

Quelle

Business Source Ultimate

Beschreibungen/Notizen

• We derive an explicit formula for the price-dividend ratio of a generalized version of Abel’s asset pricing model. This model is generalized in two ways: first, consumption (dividend) growth is assumed to be an AR(1) process subject to Gaussian random shocks, and second, the investor’s preferences are allowed to be a convex combination of internal and external habits. With an internal habit weight, 50%, and a coefficient of risk aversion, 3.25, simulation results match the historic US equity premium and risk free interest rate.