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https://hdl.handle.net/2440/57626
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Type: | Journal article |
Title: | Predictability and habit persistence |
Author: | Collard, F. Feve, P. Ghattassi, I. |
Citation: | Journal of Economic Dynamics and Control, 2006; 30(11):2217-2260 |
Publisher: | Elsevier Science BV |
Issue Date: | 2006 |
ISSN: | 0165-1889 |
Statement of Responsibility: | Fabrice Collard, Patrick Fève and Imen Ghattassi |
Abstract: | This paper highlights the role of persistence in explaining predictability of excess returns. To this end, we develop a CCAPM model with habit formation when the growth rate of endowments follows a first order Gaussian autoregression. We provide a closed form solution of the price–dividend ratio and determine conditions that guarantee the existence of a bounded equilibrium. The habit stock model is found to possess internal propagation mechanisms that increase persistence. It outperforms the time separable and a ‘Catching up with the Joneses’ version of the model in terms of predictability therefore highlighting the role of persistence in explaining the puzzle. |
Keywords: | Asset pricing Catching up with the Joneses Habit stock Predictability |
DOI: | 10.1016/j.jedc.2005.06.016 |
Published version: | http://dx.doi.org/10.1016/j.jedc.2005.06.016 |
Appears in Collections: | Aurora harvest Economics publications |
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