International Asset Pricing under Habit Formation and Idiosyncratic Risks
We present a consumption-based international asset pricing model to study the equity premiums, riskfree rates and the predictability of international asset returns. By entailing idiosyncratic consumption risk, the model helps lower the mean investor risk aversion needed to explain the international equity premiums. By featuring habit formation that disentangles intertemporal substitution from investor risk aversion in each country, the model explains the level of the U.S. short-term riskfree rate. Further, as the model takes into consideration of country-specific variations of investor risk aversion along with non-synchronized international business cycle movements, the model better explains the long-horizon predictability of the international equity markets than the world representative-agent model. Time-series variations of the exchange rates and inflation rates in the international markets also help explain the predictability of international asset returns.
international asset pricing consumption-based model habit formation idiosyncratic risks equity premiums puzzle riskfree rate puzzle predictability of returns
Yuming Li Maosen Zhong
Department of Finance College of Business and Economics California State University, Fullerton Fulle UQ Business School The University of Queensland Brisbane, QLD 4072, Australia
国际会议
西安
英文
1-54
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）