Habit formation, incomplete markets, and the significance of regional risk for expected returns

• 成果类型: Article
• 署名作者: Korniotis, George M.
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhn074
• 发表日期: 2008
• 页码: 2139
• 关键词: CONSUMPTION-BASED EXPLANATION; mutual fund performance; equity premium puzzle; BETA-PRICING MODELS; cross-section; stock returns; Heterogeneous consumers; aggregate consumption; idiosyncratic risk; COVARIANCE-MATRIX

摘要

This paper introduces a consumption-based capital asset pricing model (CCAPM) that combines undiversifiable income shocks and external habit formation. Using US state-level data, the paper provides realistic estimates for preference parameters when the external habit of the state investors is based on the consumption of the four Census regions. The model also implies four asset pricing factors: the cross-sectional means of consumption growth and habit growth (capturing national systematic risk) and the cross-sectional variances of consumption growth and habit growth (capturing regional systematic risk). This four-factor model has greater power in explaining expected returns than the CCAPM described in Breeden (1979).