Modeling Asset Premiums and the Riskfree Rate in General Equilibrium CCAPM

Modeling Asset Premiums and the Riskfree Rate in General Equilibrium CCAPM We elaborate on the consumption capital asset pricing model (CCAPM) to reveal a set of underlying forces that determine asset returns. We use generalized preferences, allow for labor-leisure choice, a broad asset portfolio, and holding international claims. A calibration of the model with US data learns that excess stock and bond returns can be replicated. At the same time, however, the riskfree interest rate generally appears to be mispriced, consistent with Weil (1989). Additional results show that in general two optimal values of the intertemporal substitution parameter correspond with a specified coefficient of risk aversion. Tests that assess the dynamic properties of the model yield mixed results, but are most favorable when home bias is allowed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Modeling Asset Premiums and the Riskfree Rate in General Equilibrium CCAPM

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Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1017913303880
Publisher site
See Article on Publisher Site

Abstract

We elaborate on the consumption capital asset pricing model (CCAPM) to reveal a set of underlying forces that determine asset returns. We use generalized preferences, allow for labor-leisure choice, a broad asset portfolio, and holding international claims. A calibration of the model with US data learns that excess stock and bond returns can be replicated. At the same time, however, the riskfree interest rate generally appears to be mispriced, consistent with Weil (1989). Additional results show that in general two optimal values of the intertemporal substitution parameter correspond with a specified coefficient of risk aversion. Tests that assess the dynamic properties of the model yield mixed results, but are most favorable when home bias is allowed.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 3, 2004

References

  • Predicting Stock Returns in an Efficient Market
    Balvers, R. J.; Cosimano, T. F.; McDonald, B.
  • Industry Returns and the Fisher Effect
    Boudoukh, J.; Richardson, M.; Whitelaw, R. F.
  • What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns
    Campbell, J. Y.; Ammer, J.
  • Financial Investment Opportunities and the Macroeconomy
    Chen, N.-F.
  • Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuations
    Cochrane, J. H.

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