Stabsseminar på fredag

Institutt for foretaksøkonomi har stabsseminar på fredag. Seminaret er ved Sydney Ludvigson, New York University. Temaet er "Land of Addicts: An Empirical Investigation of Habit-Based Asset Pricing Models".

26.05.2004 - Stig Nøra

Tid: Fredag 28. mai klokken 12.15-13.45
Sted: Karl Borchs Auditorium

Abstract

A popular explanation of aggregate stock market behavior suggests that
assets are priced as if there were a representative investor whose
utility is a power function of the difference between aggregate
consumption and a "habit" level, where the habit is some function of
lagged and (possibly) contemporaneous consumption. But theory does not
provide precise guidelines about the parametric functional relationship
between the habit and aggregate consumption. This makes formal
estimation and testing challenging; at the same time, it raises an
empirical question about the functional form of the habit that best
explains asset pricing data.
This paper studies the ability of a general class of habit-based asset
pricing models to match the conditional moment restrictions implied by
asset pricing theory. Our approach is to treat the functional form of
the habit as unknown, and to estimate it along with the rest of the
model's finite dimensional parameters. This semiparametric approach
allows us to empirically evaluate a number of interesting hypotheses
about the specification of habit-based asset pricing models. Using
stationary quarterly data on consumption growth, assets returns and
instruments, our empirical results indicate that the estimated habit
function is nonlinear, the habit formation is internal, and the
estimated time-preference parameter and the power utility parameter are
sensible. In addition, our estimated habit function generates a positive
stochastic discount factor (SDF) proxy and performs well in explaining
cross-sectional stock return data. We find that an internal habit SDF
proxy can explain a cross-section of size and book-market sorted
portfolio equity returns better than (i) the Fama and French (1993)
three-factor model, (ii) the Lettau and Ludvigson (2001b) scaled
consumption CAPM model, (iii) an external habit SDF proxy, (iv) the
classic CAPM, and (v) the classic consumption CAPM.

Paper er tilgjengelig på http://www.nhh.no/for/seminars/2004-spring/140504.pdf

Jarle Møen (59612)