Habit formation, surplus consumption and return predictability: International evidence

Engsted, Tom; Hyde, Stuart; Møller, Stig Vinther

doi:10.1016/j.jimonfin.2010.03.004

Cited by 13 publications

(1 citation statement)

References 62 publications

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“…Although there is some evidence of time-varying counter-cyclical riskaversion in recent years, the Campbell-Cochrane model does not produce lower pricing errors or more plausible parameter values than the CRRA model. In Engsted et al (2008) we present further international evidence on the relative performance of the two models. There seems to be quite large cross-country differences in the ability of the Campbell-Cochrane model to explain asset return movements over time.…”

Section: Discussionmentioning

confidence: 94%

An iterated GMM procedure for estimating the Campbell–Cochrane habit formation model, with an application to Danish Stock and bond returns

Engsted

Møller

2009

Int. J Fin Econ

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We suggest an iterated GMM approach to estimate and test the consumption based habit persistence model of Campbell and Cochrane, and we apply the approach on annual and quarterly Danish stock and bond returns. For comparative purposes we also estimate and test the standard constant relative risk-aversion (CRRA) model. In addition, we compare the pricing errors of the different models using Hansen and Jagannathan's specification error measure. The main result is that for Denmark the Campbell-Cochrane model does not seem to perform markedly better than the CRRA model. For the long annual sample period covering more than 80 years there is absolutely no evidence of superior performance of the Campbell-Cochrane model. For the shorter and more recent quarterly data over a 20-30 year period, there is some evidence of counter-cyclical time-variation in the degree of risk-aversion, in accordance with the Campbell-Cochrane model, but the model does not produce lower pricing errors or more plausible parameter estimates than the CRRA model. Copyright © 2009 John Wiley & Sons, Ltd.

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Section: Discussionmentioning

confidence: 94%

An iterated GMM procedure for estimating the Campbell–Cochrane habit formation model, with an application to Danish Stock and bond returns

Engsted

Møller

2009

Int. J Fin Econ

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Expectations Hypothesis and Term Structure of Interest Rates: An Evidence from Emerging Market

Shareef

Shijin

2016

Asia-Pac Financ Markets

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The integration of emerging economies with developed economies has changed the behaviour of interest rates and exchange rate fluctuation. The current study tries to analyse the implication of expectation hypothesis (EH) and term structures of interest rates between India and US. Using vector auto regressive estimates, the study tries to test the dynamic interdependence of interest rates on exchange rate fluctuation. Further, the study estimates Granger causality tests and Impulse Response Functions to test the behaviour of interest rate movements for a period of nineteen years ranging from June 1996 to June 2015.The empirical results of the study show evidence in line with the existence of EH in the case of emerging market. Nevertheless, in the case of advanced economies we do not find any evidence for EH. The findings revealed that the spread between long and short rate of India is influenced by short-term interest rates and past values of Indian spread. This implies that the fluctuations in the long rate over the short rate evidenced the strong presence of EH as far as emerging economy is concerned.To the best of our knowledge, this is the first study in Indian market, which tests the role of EH in interest rate fluctuations along with exchange rate. Since majority of the studies on term structure of interest rates focus on developed markets, the present study is an attempt to test the causal relationship between developed and developing economies.

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European equity markets: Who is the truly representative investor?

Rojo-Suárez

Alonso‐Conde

Pozo

2020

The Quarterly Review of Economics and Finance

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Habit formation, surplus consumption and return predictability: International evidence

Cited by 13 publications

References 62 publications

An iterated GMM procedure for estimating the Campbell–Cochrane habit formation model, with an application to Danish Stock and bond returns

An iterated GMM procedure for estimating the Campbell–Cochrane habit formation model, with an application to Danish Stock and bond returns

Expectations Hypothesis and Term Structure of Interest Rates: An Evidence from Emerging Market

European equity markets: Who is the truly representative investor?

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