Habits and the Term Structure of Risk Premia

Research output: Conference PapersRGC 32 - Refereed conference paper (without host publication)peer-review

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Detail(s)

Original languageEnglish
Publication statusPublished - 17 Dec 2019

Conference

Title32nd Australasian Finance and Banking Conference
PlaceAustralia
CitySydney
Period16 - 18 December 2019

Abstract

We propose an equilibrium asset pricing model that incorporates the important characteristics of the habit formation model of Campbell and Cochrane (1999). The model can explain the term structures of both equity returns and interest rates, while maintains the ability to explain key time series properties of returns. It also matches the empirical facts on the Sharpe ratio for dividend strips and bonds. The key is to decompose the habit into two components. Overall, the model provides micro-foundations for the value premium.

Research Area(s)

  • Habit formation, term structure, value premium

Citation Format(s)

Habits and the Term Structure of Risk Premia. / Li, Tao; Xu, Jianfeng.
2019. Paper presented at 32nd Australasian Finance and Banking Conference, Sydney, Australia.

Research output: Conference PapersRGC 32 - Refereed conference paper (without host publication)peer-review