Stock price dynamics of China : What do the asset markets tell us about the Chinese utility function?

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

2 Scopus Citations
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Detail(s)

Original languageEnglish
Pages (from-to)77-108
Journal / PublicationEmerging Markets Finance and Trade
Volume50
Publication statusPublished - 1 May 2014

Abstract

We develop and estimate several variants of consumption-based capital asset pricing models (CCAPMs) and compare their capacity in explaining the stock price dynamics of China. We conclude that adding housing to CCAPM and habit formation models yields no significant benefit in predicting stock returns, but adding housing to recursive utility models does improve predictions. Furthermore, the labor income model cannot help reduce pricing errors, but the collateral constraint model outperforms almost all other models. Some models cannot even defeat the simple autoregressive model in stock return prediction. Overall, the H-recursive utility model has the best prediction performance. Directions for future research are discussed.

Research Area(s)

  • Collateral constraint, Habit formation, Housing-augmented consumption-based asset pricing, Labor income and home production, Recursive utility, Stock returns.