Comparing consumption-based asset pricing models : The case of an Asian city

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalNot applicablepeer-review

4 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)18-41
Journal / PublicationJournal of Housing Economics
Volume28
Early online date19 Dec 2014
Publication statusPublished - Jun 2015

Abstract

Eight consumption-based asset pricing models are developed, estimated and compared their capacities in accounting for the asset markets in Hong Kong. Results based on conventional metrics or recently developed econometric techniques deliver similar results: introducing housing into the consumption-based models does not always improve the models' performance; how it is introduced matters. Recursive utility model and its housing-augmented variant, which emphasize the importance of early resolution of uncertainty and long term risk, outperform alternative models in forecasting stock returns. Collateral constraint model outperforms in predicting housing return, suggesting the importance of imperfect capital market in the housing market.

Research Area(s)

  • Collateral constraint, Consumption-based asset pricing model, Habit formation, Hansen-Jagannathan distance, Model confidence sets, Recursive utility