Habits and the Term Structure of Risk Premia
Research output: Conference Papers (RGC: 31A, 31B, 32, 33) › 32_Refereed conference paper (no ISBN/ISSN) › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
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| Publication status | Published - 17 Dec 2019 |
Conference
| Title | 32nd Australasian Finance and Banking Conference |
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| Place | Australia |
| City | Sydney |
| Period | 16 - 18 December 2019 |
Link(s)
| Permanent Link | https://scholars.cityu.edu.hk/en/publications/publication(981f9c95-348e-418d-9d41-53d8703845a9).html |
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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 Papers (RGC: 31A, 31B, 32, 33) › 32_Refereed conference paper (no ISBN/ISSN) › peer-review
