Asset and commodity prices with multi-attribute durable goods

Detemple, Jérôme; Giannikos, Christos I.

doi:10.1016/0165-1889(95)00907-8

Cited by 16 publications

(11 citation statements)

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“…For excellent surveys on equity premium and risk-free rate puzzles see Cochrane and Hansen (1992) and Kocherlacota (1996). 2 See, for example, Mehra and Prescott (1988), Reitz (1988), Abel (1990), Constantinides (1990), Ferson and Constantinides (1991), He and Modest (1995), Constantinides and Duffie (1996), Detemple and Giannikos (1996), Heaton and Lucas (1997), Hindy and Zhu (1997), Campbell and Cochrane (1999), Zhou (1999), Constantinides et al (2002), Danthine et al (2004), Gordon and St-Amour (2004), DaSilva and Giannikos (2004), Storesletten et al (2007), Donaldson and Giannikos (2009) and Giannikos and Shi (2009). discount rate, and the intensity of non-addictive habit formation validated by previous studies. Giannikos and Shi (2009) present evidence that model specifications with both durability and habit persistence are able to match the high level of equity premium observed in the US data.…”

Section: Introductionmentioning

confidence: 99%

Habit Formation in an Overlapping Generations Model with Borrowing Constraints

DaSilva

Farka

Giannikos

2009

European Financial Management

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We introduce habit-formation in the three-period OLG borrowing-constrained framework of Constantinides et al. (2002) by allowing the utility of the middleaged (old) to depend on consumption when young (middle-aged). This specification enables us to separate the effect of the two habit parameters (middle-aged and old) since each representative age-group can face different levels of habit persistence. The two-habit setup underlines some important issues with regards to savings and security returns which do not always conform to the standard findings in the literature. In addition, the model produces equity premium consistent with US data for relatively small levels of risk aversion.We are grateful to John Donaldson for numerous comments and suggestions during the course of this research. We are especially thankful to the editor, John Doukas, and George Constantinides, the referee, for their various helpful comments and suggestions. Finally we also want to thank Richard Clarida, Dan O'Flaherty, Rajnish Mehra, Bruce Preston, Stijn Van Nieuwerburgh, and conference participants of the 2005 Financial Management Association.

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Section: Introductionmentioning

confidence: 99%

Habit Formation in an Overlapping Generations Model with Borrowing Constraints

DaSilva

Farka

Giannikos

2009

European Financial Management

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“…The general equilibrium of economies with adjustment costs has been studied by a few authors (e.g. Detemple and Giannikos (1996) and Mamaysky (2001)), but not with heterogeneous agents. 3 For the cross-sectional distribution not to collapse as t → ∞, a source of idiosyncratic risk in addition to aggregate risk is needed (see Caballero (1993) for a detailed discussion).…”

Section: Testing Implications Of the Frictionless Economymentioning

confidence: 99%

Consumption-Based Asset Pricing: Durable Goods, Adjustment Costs, and Aggregation

Siegel

2004

SSRN Journal

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In this paper, we investigate the implications of non-separable preferences over durable and nondurable consumption for asset pricing tests when adjusting durable consumption is costly. In an economy without adjustment costs, in which a frictionless rental market exists for the durable good, the standard Euler equation with respect to nondurable consumption will hold for each individual agent as well as for aggregate data. If the adjustment of the durable good is costly, however, aggregation generally fails. We use aggregate data to find substantial deviations from the frictionless model, consistent with the presence of non-convex adjustment costs for the durable good. We also show how empirical asset pricing tests that use aggregate data can be affected by these deviations. We then propose and implement asset pricing tests that are robust to the presence of adjustment costs by relying on microeconomic data. Using household-level observations of nondurable food and durable housing consumption, our estimation results suggest that preferences are indeed non-separable in the two consumption goods and that reasonable structural parameters characterize agents' intertemporal utility optimizations. IntroductionConsumption-based asset pricing models, despite their many empirical failures, have been at the heart of asset pricing research for over two decades. Naturally, the starting point of these models is a particular assumption on what consumption is and here researchers have, for the most part, restricted themselves to measuring consumption as consumption of nondurable goods and services. Recently though, there has been renewed interest in an old topic, namely the role of durable consumption in asset pricing tests. 1Introducing durable consumption into the agent's utility function brings new modelling issues to the asset pricing literature. One such issue is whether changing durable consumption is subject to adjustment costs and how these adjustment costs potentially affect asset prices. This question is particularly important if one uses aggregate data to test asset pricing implications.On the one hand, standard aggregation arguments will generally not hold if individual agents are subject to adjustment costs. Asset pricing tests using aggregate data therefore risk being misspecified if they do not account for consumption heterogeneity across individual agents.On the other hand, however, aggregation introduces smoothness that could make infrequent adjustments at the micro level irrelevant for understanding aggregate phenomena. In other words, macroeconomic data might behave as if generated by a representative agent in a frictionless economy. In this paper we therefore investigate whether asset pricing tests that use aggregate data can safely ignore adjustment costs, either because they are irrelevant at the individual level or, more likely, because frictions at the micro level do not affect the relationship between aggregate data and asset returns.Our tests rely on the fact that in a frictionless economy wit...

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“…The theoretical effects of durability on portfolio choice have been studied by Grossman and Laroque (1990), Hindy and Huang (1993), Detemple and Giannikos (1996), Hindy et al (1997), Cuoco and Liu (2000) and by Damgaard et al (2003). In a constant investment opportunity set environment, it has been shown that an investor with preferences of the CRRA class defined over both a perishable and a durable good will find optimal to set constant portfolio weights over the time.…”

Section: Durability Of Consumption Goodsmentioning

confidence: 99%

Portfolio Investment in an Intertemporal Setting

Ríos¹

2007

OECD Working Papers on Insurance and Private Pensions

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ABSTRACT/RÉSUMÉ Portfolio investment in an intertemporal setting: Assessment of the literature and policy implications for Latin American pension systemsSeveral countries around the globe have established mandatory pension systems based on personal savings accounts. In contrast to the pay-as-you-go (PAYG) financed pensions that these new systems have partly replaced, retirement benefits are the outcome of an investment process. As a result, the choice of investment instruments and the timing of those decisions are crucial determinants of pension benefits. Focusing on this issue, this paper reviews the literature on optimal long-term investment from an individual investors' perspective, assessing the intertemporal portfolio choice problem in a retirement context. The paper then draws lessons for mandatory personal account systems, focusing on the Latin American experience. Plusieurs pays dans le monde ont mis en place des régimes de retraite obligatoires qui reposent sur des comptes d'épargne individuels. Contrairement aux pensions financées par répartition que ces nouveaux régimes ont en partie remplacées, les prestations de retraite sont le produit d'un processus de placement. En conséquence, le choix des instruments de placement et le moment auquel ces décisions d'investissement sont prises revêtent une importance déterminante pour les prestations de retraite. Se plaçant du point de vue de l'investisseur individuel, le présent document se consacre à cette question et procède à une revue des publications consacrées à l'investissement optimal de long terme et analyse le problème du choix intertemporel de constitution d'un portefeuille appliqué à l'épargne retraite. Le document tire ensuite les leçons des régimes obligatoires reposant sur des comptes individuels et s'attachante à l'expérience des pays latino-américains.Classification JEL : G23 Mots clés : Fond de retraite, préférences de portfolio, alternatives d'investissement, limites d'investissement, choix intertemporel.

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Asset and commodity prices with multi-attribute durable goods

Cited by 16 publications

References 50 publications

Habit Formation in an Overlapping Generations Model with Borrowing Constraints

Habit Formation in an Overlapping Generations Model with Borrowing Constraints

Consumption-Based Asset Pricing: Durable Goods, Adjustment Costs, and Aggregation

Portfolio Investment in an Intertemporal Setting

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